Greece gears up for tough reforms

[Kasz216]

SamuelRSmith said:

Kasz216 said:
No that's now how bonds work.  US interest rates are down for bonds. 

I'll go with a quick explination of bonds that hopefully won't be too boring.

Bonds only go on sale when the government want to.  So say the US government wants to raise some pizza money for a congressional pizza party so they issue three bonds for $100 each with a 10 year yield. (Numbers kept low for simplicities sake.)

They auction these bonds, through the treasuries website.

The 100 bonds sell for $89, $90 and $91.  The average yield of the 10 year bond is 10%.  Then there is yield to maturity, which is a totally different more complicated thing... and the bond price, which is the price private investors get on the open market.

http://www.investopedia.com/university/bonds/bonds3.asp#axzz1nhkylYD8

The theory goes, a downgrade spooks the investors, causing less investors to buy bonds... therefore bond yields go up.  The theory doesn't always work in practice however, because your average modern investors are likely to have done a lot of research on countries bonds to begin with. 

Meaning that before the downgrade, people see the problems, pull out, driving the price down before the downgrade ever happens.

Just to build on what you said (talking about markets in general, not just bonds):

In the modern information age, just about everything is already priced into the market before it happens. Which means that stuff rarely drops when bad news comes out, and stuff rarely rises when good news comes out (though the rises will always outpace the falls, due to human nature, loss aversion - these will build up to sudden drops every now and again)

The markets always trend upwards, as it is generally accepted that tomorrow is brighter than today. Essentially it is only completely random events (say, non-predicted natural disasters, sudden collapse of financial institutions) which have any real implications on the markets, it's these random events which cause the markets to look random, and hide the general trend.

All true.

A good sign of this is probably the dow going up pretty well despite greece's troubles.