Without getting to hung-up on terminology here, the management of a company will often attempt to keep stock prices high because of a number of reasons:

• lower prices mean lower capitalization: could lead to a takeover
• issuing stock is a way for a company to get capital without borrowing: higher stock prices make capital cheaper
• stock price is important to the owners of the company (the stockholders.) In fact, it's common today for management to believe that stock price is the #1 most important responsibility of the company.

Ideally companies keep prices up through performance. In some cases, you'll see companies do other things spending cash and/or issuing bonds to continue to pay dividends (e.g. IBM), or spending cash and/or issuing bonds to pay for stock buybacks (e.g. IBM). These methods can work for a time but are not sustainable and will often be seen as acts of desperation. Companies that have a solid plan for growth will typically not do much of anything to directly change stock prices.

Bonds are a bit different because they have a fairly straight-forward valuation model based on the fact that they pay out a fixed amount per month. The two main reason prices in bonds go down are:

1. Bonds that pay more a month (relative to purchase price) after accounting for risk are available.
2. The risk of default is considered to be higher than before.

The key here is that bonds pay out the same thing per month regardless of their price or the price of other bonds available. Most stocks do not pay any dividend and for much of those that do, the main factor as to whether you make or lose money on them is the stock price.

The price of bonds does matter to governments, however. Let's say a country successfully issued some 10 year bonds last year at the price of 1000. I pay 1% coupon rate. Every month, I pay out $10 per bond. Then some (stupid) politicians start threatening to default on bond payments. The bond market freaks and people start trying to unload these bonds as fast as they can. The going price drops to $500. Next month, the payments are the same. The coupon rate on the bonds has not changed at all. I'm oversimplifying here but this is the core of how bond prices work.

You might be tempted to think that doesn't matter to the country but it does. Now, this same country wants to issue some more bonds. It wants to get that 1% rate again but it can't. Why would anyone pay $1000 for a 1% bond when they can get the exact same bond with (basically) the same risks for $500? Instead they have to offer a 2% rate in order to match the market price.

A government (or company) could in fact put money into the bond market to bolster the price of it's bonds (i.e. keep the rates down.) The problem is that if you are issuing bonds, it's generally (caveats apply) because you need cash that you don't have so what money are you going to use to buy these bonds? Or in other words, it doesn't make sense to issue bonds and then simply plow the cash gained from that issuance back into the same bonds you are issuing. The options here are a bit more limited. I have to mention though that the US government (via a quasi-governmental entity) did actually buy it's own bonds. This policy of Quantitative Easing (QE) was done for more complicated reasons than simply keeping the price of bonds up.

Without getting to hung-up on terminology here, the management of a company will often attempt to keep stock prices high because of a number of reasons:

• lower prices mean lower capitalization: could lead to a takeover
• issuing stock is a way for a company to get capital without borrowing: higher stock prices make capital cheaper
• stock price is important to the owners of the company (the stockholders.) In fact, it's common today for management to believe that stock price is the #1 most important responsibility of the company.

Ideally companies keep prices up through performance. In some cases, you'll see companies do other things spending cash and/or issuing bonds to continue to pay dividends (e.g. IBM), or spending cash and/or issuing bonds to pay for stock buybacks (e.g. IBM). These methods can work for a time but are not sustainable and will often be seen as acts of desperation. Companies that have a solid plan for growth will typically not do much of anything to directly change stock prices.

Bonds are a bit different because they have a fairly straight-forward valuation model based on the fact that they pay out a fixed amount per month. The two main reason prices in bonds go down are:

1. Bonds that pay more a month (relative to purchase price) after accounting for risk are available.
2. The risk of default is considered to be higher than before.

The key here is that bonds pay out the same thing per month regardless of their price or the price of other bonds available. Most stocks do not pay any dividend and for much of those that do, the main factor as to whether you make or lose money on them is the stock price.

The price of bonds does matter to governments, however. Let's say a country successfully issued some 10 year bonds last year at the price of 1000. They pay 1% per month (to keep the math simple.) Every month, they pay out $10 per bond. Then some (stupid) politicians start threatening to default on bond payments. The bond market freaks and people start trying to unload these bonds as fast as they can. The going price drops to $500. Next month, the payments are the same. The coupon rate on the bonds has not changed at all. I'm oversimplifying here but this is the core of how bond prices work.

You might be tempted to think that doesn't matter to the country but it does. Now, this same country wants to issue some more bonds. It wants to get that 1% rate again but it can't. Why would anyone pay $1000 for a 1% (per month) bond when they can get the exact same bond with (basically) the same risks for $500? Instead they have to offer a 2% (per month) rate in order to match the market price.

A government (or company) could in fact put money into the bond market to bolster the price of it's bonds (i.e. keep the rates down.) The problem is that if you are issuing bonds, it's generally (caveats apply) because you need cash that you don't have so what money are you going to use to buy these bonds? Or in other words, it doesn't make sense to issue bonds and then simply plow the cash gained from that issuance back into the same bonds you are issuing. The options here are a bit more limited. I have to mention though that the US government (via a quasi-governmental entity) did actually buy it's own bonds. This policy of Quantitative Easing (QE) was done for more complicated reasons than simply keeping the price of bonds up.

Without getting to hung-up on terminology here, the management of a company will often attempt to keep stock prices high because of a number of reasons:

• lower prices mean lower capitalization: could lead to a takeover
• issuing stock is a way for a company to get capital without borrowing: higher stock prices make capital cheaper
• stock price is important to the owners of the company (the stockholders.) In fact, it's common today for management to believe that stock price is the #1 most important responsibility of the company.

Ideally companies keep prices up through performance. In some cases, you'll see companies do other things spending cash and/or issuing bonds to continue to pay dividends (e.g. IBM), or spending cash and/or issuing bonds to pay for stock buybacks (e.g. IBM). These methods can work for a time but are not sustainable and will often be seen as acts of desperation. Companies that have a solid plan for growth will typically not do much of anything to directly change stock prices.

Bonds are a bit different because they have a fairly straight-forward valuation model based on the fact that they pay out a fixed amount per month. The two main reason prices in bonds go down are:

1. Bonds that pay more a month (relative to purchase price) after accounting for risk are available.
2. The risk of default is considered to be higher than before.

The key here is that bonds pay out the same thing per month regardless of their price or the price of other bonds available. Most stocks do not pay any dividend and for much of those that do, the main factor as to whether you make or lose money on them is the stock price.

The price of bonds does matter to governments, however. Let's say a country successfully issued some 10 year bonds last year at the price of 1000. I pay 1% coupon rate. Every month, I pay out $10 per bond. Then some (stupid) politicians start threatening to default on bond payments. The bond market freaks and people start trying to unload these bonds as fast as they can. The going price drops to $500. Next month, the payments are the same. The coupon rate on the bonds has not changed at all.

You might be tempted to think that doesn't matter to the country but it does. Now, this same country wants to issue some more bonds. It wants to get that 1% rate again but it can't. Why would anyone pay $1000 for a 1% bond when they can get the exact same bond with (basically) the same risks for $500? Instead they have to offer a 2% rate in order to match the market price.

A government (or company) could in fact put money into the bond market to bolster the price of it's bonds (i.e. keep the rates down.) The problem is that if you are issuing bonds, it's generally (caveats apply) because you need cash that you don't have so what money are you going to use to buy these bonds? Or in other words, it doesn't make sense to issue bonds and then simply plow the cash gained from that issuance back into the same bonds you are issuing. The options here are a bit more limited. I have to mention though that the US government (via a quasi-governmental entity) did actually buy it's own bonds. This policy of Quantitative Easing (QE) was done for more complicated reasons than simply keeping the price of bonds up.

Without getting to hung-up on terminology here, the management of a company will often attempt to keep stock prices high because of a number of reasons:

• lower prices mean lower capitalization: could lead to a takeover
• issuing stock is a way for a company to get capital without borrowing: higher stock prices make capital cheaper
• stock price is important to the owners of the company (the stockholders.) In fact, it's common today for management to believe that stock price is the #1 most important responsibility of the company.

Ideally companies keep prices up through performance. In some cases, you'll see companies do other things spending cash and/or issuing bonds to continue to pay dividends (e.g. IBM), or spending cash and/or issuing bonds to pay for stock buybacks (e.g. IBM). These methods can work for a time but are not sustainable and will often be seen as acts of desperation. Companies that have a solid plan for growth will typically not do much of anything to directly change stock prices.

Bonds are a bit different because they have a fairly straight-forward valuation model based on the fact that they pay out a fixed amount per month. The two main reason prices in bonds go down are:

1. Bonds that pay more a month (relative to purchase price) after accounting for risk are available.
2. The risk of default is considered to be higher than before.

The key here is that bonds pay out the same thing per month regardless of their price or the price of other bonds available. Most stocks do not pay any dividend and for much of those that do, the main factor as to whether you make or lose money on them is the stock price.

The price of bonds does matter to governments, however. Let's say a country successfully issued some 10 year bonds last year at the price of 1000. I pay 1% coupon rate. Every month, I pay out $10 per bond. Then some (stupid) politicians start threatening to default on bond payments. The bond market freaks and people start trying to unload these bonds as fast as they can. The going price drops to $500. Next month, the payments are the same. The coupon rate on the bonds has not changed at all. I'm oversimplifying here but this is the core of how bond prices work.

You might be tempted to think that doesn't matter to the country but it does. Now, this same country wants to issue some more bonds. It wants to get that 1% rate again but it can't. Why would anyone pay $1000 for a 1% bond when they can get the exact same bond with (basically) the same risks for $500? Instead they have to offer a 2% rate in order to match the market price.

A government (or company) could in fact put money into the bond market to bolster the price of it's bonds (i.e. keep the rates down.) The problem is that if you are issuing bonds, it's generally (caveats apply) because you need cash that you don't have so what money are you going to use to buy these bonds? Or in other words, it doesn't make sense to issue bonds and then simply plow the cash gained from that issuance back into the same bonds you are issuing. The options here are a bit more limited. I have to mention though that the US government (via a quasi-governmental entity) did actually buy it's own bonds. This policy of Quantitative Easing (QE) was done for more complicated reasons than simply keeping the price of bonds up.