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It's not clear to me how the interest rate of a specific government bond changes. I would like to make a comparison with cryptocurrency exchanges.

Consider, for example, the price of bitcoin on kraken. It changes on the basis of the price of the last trade executed. If a trade was executed at 1000$ at 10AM and I checked the price at 10:05, I would get 1000$. Next, a trade was executed at 1005$ at 11AM, checking again at 11:05 would return 1005$. I hope you get what I mean.

Now, do bonds work the same? I can imagine there are people selling on the secondary market at given interest rates, therefore the rate changes on the basis of those trades.

Also, bitcoin can have different prices on different exchanges, is it the same for bonds?

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I can imagine there are people selling on the secondary market at given interest rates, therefore the rate changes on the basis of those trades.

No - the rate for a given bond is fixed, and is set by the entity that issued the bond (there are floating-rate bonds, but the rate is not determined by the market for that bond, but rather by some other "reference" interest rate like SOFR). What changes in the yield, or how much return you get if you hold the bond to maturity (and the guarantor doesn't default). Since you can buy a bond for more or less than its face value (e.g. $1,000 for US Treasury bonds), your actual return can be more or less than the stated interest rate. If you buy a bond for less than face value, you get the interest plus the difference between the face value and what you paid for it, so you get a higher yield.

Also, bitcoin can have different prices on different exchanges, is it the same for bonds?

Most bonds are not traded on exchanges - they are traded OTC between bond dealers. But yes you can have different bid/ask prices between dealers.

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  • So, as long as I understood, a bond can be issued at 100 with a guaranteed rate of 4%, so it will be sold at 104. But people can trade it for less than 100, therefore the yield can increase and decrease as its price does? This is really confusing – DamiToma Mar 11 at 19:06
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    No, a bond issued at 100 with a rate of 4% would not necessarily sell for 104. It's "normal" value would be 100 with a guaranteed (for a govt bond) return of 4%. The reasons it would be traded for more or less than par are too complex for a comment, but it's a very different world than currencies - crypto or otherwise. – D Stanley Mar 11 at 19:42
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    @DamiToma The reason for this discrepance is the following: Assume that these 4% are by far higher than the market would otherwise give. This makes these bonds quite interesting, so their price rises as the demand grows. – glglgl Mar 12 at 10:49

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