Question

I know the bond yield increase the bond price decrease

what is the relationship between the bond price and cost of fund?

If i'm a liability manager.

if I forecast the short term yield goes up and mid, long -term yield decline.

what should i do?

if I forecast all term will decline

what should I do?

why?

Answer 1

The relationship between the bond price and the cost of fund is that when the bond price increases, it means that the yield has come down which means that it's cheaper now to borrow money and the cost of fund reduces.

If you forecast that the short term yield goes up and the mid and long-term yiled goes down, it means you should increase your long-term borrowing and reduce the short-term borrowing which will reduce your cost overall.

If you assume that all yields will decline, you can borrow any way you need the money. You can borrow long-term or short-term based on your requirements and your asset position.