10. Why Bond Yields Fall During Economic Slowdowns When the market anticipates a recession or slowdown, bond yields typically decline. The reasons are as follows: • Investors seek safety — During uncertain times, investors shift from riskier assets (stocks, cryptocurrencies) to safe-haven assets like U.S. Treasury bonds, increasing demand and driving up bond prices. • Price-yield relationship — Bond prices and yields move in opposite directions. For example, if a $1,000 bond with a yield of 4% rises in price to $1,333, its yield will fall to 3%. • Economic warning signals — Weak GDP growth, rising unemployment, or trade tensions (such as tariffs) indicate an economic slowdown, prompting more investors to buy bonds. • Fed expectations — If a recession seems likely, traders expect the Federal Reserve to cut interest rates, making existing high-yield bonds more attractive and further lowering the yields on new bonds.

📉 Real-world example: In March 2020, during the COVID-19 crisis, the yield on the 10-year U.S. Treasury bond plummeted from 1.9% to 0.5% as investors flocked to the bond market.