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During the auction if the demand for a particular bond is high, then the bond is sold to the highest bidder at a price higher than the face value. If this happens, the yield for the bond decreases as the government will repay just the face value and the pre-determined interest on the bond. On the other hand, if there is not too demand for a bond, a bidder will pay lower than the face value for the bond and this in turn increases the yield of the bond.
Yields for Treasury bonds change on a daily basis as many people do not keep the bonds for their entire terms. These bonds are sold in the secondary market and when bond prices drop, you know at once that there is not a lot of demand for Treasury bonds. This means that the yield increases for these bonds.
Bonds with different maturities have different interest rates and these rates move independently of each other. In fact, short-term interest rates and long-term interest rates usually move in opposite directions. Short-term bonds have lower yields as the investor’s money is under less risk. The longer an investor’s money is tied up in a bond, the more he is paid for taking the risk. Short term yields of Treasury bonds are dependent on the secondary market and the demand for the bonds.
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