Why do bond yields go down when there is fear of recession/due to the trade war?

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Why do bond yields go down when there is fear of recession/due to the trade war?

In: Economics

Bonds are a guaranteed return. Generally you can sign up for a bond that has a set maturity date and a set return. For example you could buy a bond from your city for $100 and in 5 years get $110 when you exercise that bond.

When there is a trade war or any uncertainty investors will flee from the stock market due to the unknown risks the future holds. However they still want some return and will go to bonds. As such people selling bonds also want to save some money and know they can offer lower returns due to the influx of “scared investors”.

Bond yields move in the opposite direction of bond prices.

So what’s really happening is people are buying bonds when there’s fear of recession. In a recession, businesses get less valuable because they make less money, but bonds pay the same amount as long as the payer survives.

So, bonds are a better investment during a recession and people buying bonds means they think it’s more likely that a recession may occur, bond prices become a good predictor of recessions.