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Bond prices

1. Do normal demand/supply fluctuations move bond prices?
2. Or is it based on changes in the required yield (which is factored into the bond calculation, thus changing the prices)

If it's based on 1. then to changes in required yield force people to buy and sell?
What market forces change the required yield? Is this based on the yield curve?

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Solution Preview

You are right on both parts. First of all the price of any item (including bonds and other debt securities) is based on the law of demand and supply. But this is a a very high level explanation of the bond prices. Of course the higher the demand, greater the bond prices and lower the demand, less are the bond prices. A similar logic can be deduced for the supply of bonds. ...

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