How is a long term issue adjusted by short term factors?

We are already used to all kinds of market fluctuations; however, some fluctuations are very confusing that the price of a long term security should change much less violently. It is very easy to understand for all of us that what happens today has more impacts on something that is scheduled for tomorrow than on something is scheduled for next year.

The ordinary stock market could fluctuate very violently as though some people trade stocks for seeking long term returns, there are some opportunists who seek for short term returns or even next millisecond return. Such market fluctuation is sensible and very common. However, when we look at the government bond markets, the situation is much different. The maturity of a government bond is fixed, which means technically you cannot claim back your loans before the bond is mature. As people now can trade their government bonds with other investors, we can actually see that the returns and the prices of the government bonds change over time and sometimes fluctuate very violently. When it is a 10 year or even 20 year government bond, people may be more sensible to consider more about the trend rather than the short term fluctuation of the economic performance. Think about the government bond a consumer product, whatever the market changes, as long as the government does not default, what the government bond delivers never changes. If the utility does not change, the price should not change, unless THERE IS SOMETHING BETTER.

Yes, what really changes some long term issues is other choices, in economics terms, the opportunity costs. As long as we can trade our holdings with other people, there is nothing long termed, as we are no longer seeking for returns in the future, we are actually seeking for the best choices at this particular moment. We still want to have higher returns in the future, but to achieve higher returns, we adjust our choices more frequently when the market is more complete and free; therefore, maybe we have a long term goal, but we are making short term decisions overall.