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Country K's government sells a large new issue of 10-year bonds while investor demand for them is unchanged. Other things equal, what is the most likely effect?
Supply and demand set prices in financial markets as in goods markets. A bigger supply of bonds meeting unchanged demand pushes the market-clearing price down. Because the bond's fixed coupons and redemption amount are then bought for less, its yield rises: bond prices and yields move in opposite directions. A rise in price with a fall in yield is what extra demand, not extra supply, produces. Price and yield cannot fall together for the same bond, and an unchanged demand curve does not stop a shift in supply from moving the equilibrium price. Source: Standard economics (supply and demand; inverse bond price-yield relationship) (as at October 2026).
Thinking that if demand is unchanged the price cannot move. A shift in supply alone changes the equilibrium price.
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