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Why do increased prices equal lower yields on financial... - 6/8/2017 2:28:51 AM   
williamhawk

 

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From wikipedia, on Quantitative Easing:

"A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base and lowering the yield on those financial assets."

Why does the central bank's purchase of financial assets lead to lower yields on them? Is it because the increase in prices means that the returns/yields, already set in terms of previous prices and dollar values, are now less as the value of the dollar has been reduced with the increased money supply? Am I understanding this correctly?

Why does buying short-term government bonds" have the effect of "lowering short-term market interest rates" in "expansionary monetary policy," but "purchasing assets of longer maturity than short-term government bonds" has the effect of "lowering longer-term interest rates further out on the yield curve" in "quantitative easing" policy?


Please Help.
Thanks !
I didn't find the right solution from the internet.
References:
-www.able2know.com
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