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This decreases the yield of the bonds as the investor will get back the face value of the bonds along with the pre-determined interest.
It is the opposite if the demand for bonds is low. The bonds are then sold at a price lower than the face value and this increases the yield of the bond.
Yields for Treasury bonds change on a daily basis as many investors do not keep the bonds until their maturity date. These bonds are sold by brokers on the secondary market which is governed by interest rates.
There is a relationship between Treasury bonds and mortgage rates. When the demand for bonds is low, the yield increase and this also affects fixed rate mortgages. When bond yields increase the interest rate for fixed rate mortgages also increases. This means that it is more expensive to buy a home. This, then, works toward decreasing the demand for homes and prices for homes start falling. As this happens, the economy is affects and the GDP growth can reduce. When the yield for a bond is high, the Treasury Department raises the interest rate to attract buyers and over time there is an increase in demand for Treasury bonds and the value of the dollar increases. This in turn impacts fixed-rate mortgages as interest rates decrease.
High demand for Treasury bonds means low yields and low interest rates. This means that housing is more affordable and it gives impetus to the housing industry and indirectly stirs the economy to grow.
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