<p>This question is too long. To be useful for this website, questions need to be questions, without filler text. You should also try to avoid suggesting answers, as if your suggestion is wrong (as happened here), it makes it harder to answer the question.</p>

<p>You have questions about the notion of “corporation” versus “bank.” A bank is just a type of corporation, and both banks and non-banks issue corporate bonds.</p>

<blockquote>
  <p>The yield of [corporate] bonds reflects the cost of borrowing for the issuer, so for banks who issue corporate bonds, if the yield on the bonds decreases it is cheaper to access finance", is this simply referring to how much the company has to pay back for the bond or is it referring to how much it costs banks to borrow from the central bank?</p>
</blockquote>

<p>Neither of your suggestions. </p>

<p>A bond is a loan that has been structured in a fashion to allow it to be bought and sold in a market. The standard structure is to repay the principal at maturity, and the interest paid in the form of coupons on a fixed schedule (depending on the market, typically either every 6 or 12 months). The initial sale of the bond by the issuer is the loan operation, after that, the issuer just pays the coupons and principal, and is not directly affected by later transactions.</p>

<p>Unless the bond is callable, the issuer has no right to pay back the loan early, and so there is no notion of “paying back” the bond - it is always repaid on a fixed schedule.</p>

<p>Meanwhile, borrowing from the central bank has nothing to do with this.</p>

<p>Instead, what the speaker is referring to is the cost of issuing new bonds. Most issuers will have existing bonds, and their price in the secondary market implies a certain rate of return for investors. Investors will only buy newly issued bonds if the interest on them is comparable to those existing bonds. So if the central bank does actions to lower bond yields in the secondary corporate bond markets, corporations can issue new bonds at a lower interest rate.</p>

CC BY-SA 4.0
2020-05-07T12:52:12.310Z
2020-05-07T12:52:12.310Z
Brian Romanchuk
<p>I am currently learning about quantitative easing, and I am having trouble understanding yield rates and how that influences the "cost of borrowing".</p>

<p><a href="https://www.youtube.com/watch?v=5o_A3RN95WA&amp;t=484s" rel="nofollow noreferrer">This</a> is the resource I am using.</p>

<p>The lecturer says something along the lines of "the yield of bonds reflects the cost of borrowing for the issuer. If the yield for these bonds reduces it means accessing finance is cheaper. They can raise finance but now at a lower cost to them" (he is referring to both government and corporate bonds).</p>

<p>I am a bit confused about some things here. When he says that "the yield of [corporate] bonds reflects the cost of borrowing for the issuer, so for banks who issue corporate bonds, if the yield on the bonds decreases it is cheaper to access finance", is this simply referring to how much the company has to pay back  for the bond or is it referring to how much it costs banks to borrow from the central bank - and are corporate bonds only referring to banks or are they referring to all corporations? And when they say "the yield of these bonds reduces ... they can raise finance at a lower cost to them", is that referring banks borrowing from other banks or something? </p>

<p>Sorry if this is confusing I'm just having trouble piecing this together.</p>

<p>Thank you</p>

<macroeconomics><money-supply><central-banking><quantitative-easing>
How yield rates influence the "cost of borrowing" for borrowers
Christopher U
# How yield rates influence the "cost of borrowing" for borrowers

(Asked by: username_0 on 2020-05-07)

I am currently learning about quantitative easing, and I am having trouble understanding yield rates and how that influences the "cost of borrowing".

[This](https://www.youtube.com/watch?v=5o_A3RN95WA&t=484s) is the resource I am using.

The lecturer says something along the lines of "the yield of bonds reflects the cost of borrowing for the issuer. If the yield for these bonds reduces it means accessing finance is cheaper. They can raise finance but now at a lower cost to them" (he is referring to both government and corporate bonds).

I am a bit confused about some things here. When he says that "the yield of [corporate] bonds reflects the cost of borrowing for the issuer, so for banks who issue corporate bonds, if the yield on the bonds decreases it is cheaper to access finance", is this simply referring to how much the company has to pay back for the bond or is it referring to how much it costs banks to borrow from the central bank - and are corporate bonds only referring to banks or are they referring to all corporations? And when they say "the yield of these bonds reduces ... they can raise finance at a lower cost to them", is that referring banks borrowing from other banks or something?

Sorry if this is confusing I'm just having trouble piecing this together.

Thank you

**Tags:** macroeconomics, money-supply, central-banking, quantitative-easing

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## 1 answers

### Answer by username_1 on 2020-05-07. Score: 2

This question is too long. To be useful for this website, questions need to be questions, without filler text. You should also try to avoid suggesting answers, as if your suggestion is wrong (as happened here), it makes it harder to answer the question.

You have questions about the notion of “corporation” versus “bank.” A bank is just a type of corporation, and both banks and non-banks issue corporate bonds.

> The yield of [corporate] bonds reflects the cost of borrowing for the issuer, so for banks who issue corporate bonds, if the yield on the bonds decreases it is cheaper to access finance", is this simply referring to how much the company has to pay back for the bond or is it referring to how much it costs banks to borrow from the central bank?

Neither of your suggestions.

A bond is a loan that has been structured in a fashion to allow it to be bought and sold in a market. The standard structure is to repay the principal at maturity, and the interest paid in the form of coupons on a fixed schedule (depending on the market, typically either every 6 or 12 months). The initial sale of the bond by the issuer is the loan operation, after that, the issuer just pays the coupons and principal, and is not directly affected by later transactions.

Unless the bond is callable, the issuer has no right to pay back the loan early, and so there is no notion of “paying back” the bond - it is always repaid on a fixed schedule.

Meanwhile, borrowing from the central bank has nothing to do with this.

Instead, what the speaker is referring to is the cost of issuing new bonds. Most issuers will have existing bonds, and their price in the secondary market implies a certain rate of return for investors. Investors will only buy newly issued bonds if the interest on them is comparable to those existing bonds. So if the central bank does actions to lower bond yields in the secondary corporate bond markets, corporations can issue new bonds at a lower interest rate.


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