What does it mean when the bond market experiences a supply/demand impact?

When discussing a supply/demand impact in the bond market, the key concept revolves around the relationship between the availability of bonds (supply) and the desire of investors to purchase these bonds (demand). When more bonds are issued, the increased supply generally leads to a decrease in their prices because there are more available for investors to purchase. As the prices of bonds decrease, the yields associated with those bonds will increase.

This is because yield is inversely related to bond prices—when prices drop, yields rise, reflecting the new relationship between the bond payments and their market price. Therefore, in the context of increased supply, yields will rise due to the influx of bonds flooding the market, making the correct answer link directly to the dynamics of supply leading to higher yields.

While the other options mention the price movement of bonds and effects of demand, the focus on yields and the mechanics of the bond pricing in response to supply changes is central to understanding this specific aspect of the market.