Bond Yields, DV01, and Their Relationship to the Federal Funds Rate

Summary

The document introduces bond yield as a rate obtained by solving for the discount rate consistent with a bond’s price, and notes that yields across maturities can be plotted as a yield curve. It also defines DV01 as the bond-price change associated with a one-basis-point change in that bond’s yield, placing the question in the context of interest-rate risk measurement.

The author asks how bond yields relate to the Federal Reserve’s key policy rate and how large the difference between them tends to be. No explanation, data, or empirical comparison is provided, so the document does not establish a fixed spread or a direct formula. It is best read as a question identifying the distinction between a policy rate and market yields across maturities, rather than as a complete lesson on the drivers of yields or bond sensitivity.

Key ideas

• Bond yield is inferred from a bond’s price and cash flows.
• Yields at different maturities can be arranged into a yield curve.
• DV01 measures a bond’s price sensitivity to a one-basis-point yield move.
• The document asks how market yields relate to the Federal Reserve policy rate but provides no answer or supporting data.

Tags

# What is the relation between fed rate and yields of the bond?


# What is the relation between fed rate and yields of the bond?












We have a metric DV01 of a bond, which is the price change in response to a 1 bp change in yield of this instrument. Yields we can get from solving the equation, so it is a math concept. For bonds with different maturity we can calculate yields and plot a yield curve.

But how yield depends on the key rate (fed rate)? What is the relation between them? How much do they differ in terms of basis points?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.