there are a few serious concerns about that visualization you have there. Starting with derivatives- couldn't be wronger and working backwards- bitcoin and silver I'd agree with, as well as narrow money. Using market cap for companies is worse than half ass, and the rest is ridiculous measurement and misguided effort.
you have the broad strokes of the bond market correct, for US treasuries, (and most of the other investment grade bonds but especially Treasuries - to a lesser degree munis) however there are a few other issues you have to consider in pricing.
About to pontificate - fair warning:
A bond is essentially a promise to trade money now, for a promise of a stream of money in the future and then your money back. t-bill is the same but with no coupons, i.e. no flow just a payout of face value at the end.
Now when a company issues a bond, their credit worthiness is a factor in how much they have to promise to pay in order to get the money in in the first place. The seriously dodgy credit rating industry "certifies" the bond on a rating scale- usually AAA at the best rate down to a junk rating. Triple A pays the lowest coupon as they are the least likely to default, and junk pays a high rate as they are more likely to fail and not pay back the money.
so far so good. Now when you look at any investment you only consider the NPV i.e. you try and assess the Net Present Value (NPV) of the money. So say for example I am getting $100 in 2 years, what is that actually worth to me now. In order to do that you have to assess the risk free rate of that payment. Every borrower and lender has a different risk free rate, and there is a whole (allegedly scientific, but basically mathematically driven speculation) division of most banks that look at very complex ways to build a yield curve which they can agree is the value of payments in the future. This is the first piece of the puzzle. The second piece (or First Derivative! (you know who you are)) is the volatility surface. No matter how good your model is for predicting that future value- things change. Everything changes actually, but economists, and by implication quants, have used the idea of ceteris paribus to pretend they don't change that much. This volatility is also important, and that brings us back full circle to why there are other factors involved.
the interest rate (as per seafoid's example) is often quoted and that is a landmine in definition all on its own- but what we are really looking for is a good approximation to that risk free rate of borrowing which we can find using one of those fancy yield curves with their cubic splining and their binomials, trinomials and monte carlo simulations.
Lets take a look at the other factors.
- Housing industry, more houses sold= more mortgages = more need to hedge 30 year debt= more long term treasuries needed= higher priced treasuries (demand and supply!).
- GDP- how is the US economy stacking up against other economies= predictor for currency exchange rates
- Consumption indicators- how much are people spending and how much are they saving (note to reader- people are stupid - if you want one piece of advice- save more)
- manufacturing indicators- good for wage assessment, short term borrowing requirements, national exchange and trade signals
- the national debt- you can figure this one out.
and depending on your access to data and compute resources (and decent mathematicians, or data scientists, or predictive analytics) you can model these whatever way you want and add as many other factors as you'd like...
So when it comes down to it the price of a bond however it is based on how likely the issuer is to continue making those payments "my word is my bond" and how valuable those payments are to the individual who buys them at the time of valuation
In essence though, all of these can be modeled reasonably successfully, but the 2 biggest factors we haven't touched yet, and they are actually much harder to model accurately are political influence and marketing
1. political influence:
uneducated misguided corrupt dumbasses with no economic background in real life (aka politicians) have been the implementors of the all government budget and debt programs to make good on their asinine claims of what they will do when they are elected. i.e. Greece- we're going to default. Trump- we're gonna buy em back. Trump- forgot to tell you how great I am. Bush, no new taxes, Obama, self reliance for energy. Putin, I'm invading everyone. Boris, we're leaving, Cam, we're staying. All of these jackasses make big promises with the flimsiest of informational background, lots of shitty opinions and no idea of the ramifications for their economy.*
educated misguided corrupt dumbasses wth no economic background in real life (aka academics) have been propagating half baked assumptions in public in the schools and in the press about the worlds economy for the best part of 4000 years. And when you combine those d**kheads with the d**kheads in point 1 you make for a scenario where it becomes shockingly difficult for someone outside of the system to get a handle on what's really going on and no one in the system wants those outsiders to see, because odds are they'll see how bad a job they are doing- bring on the robots I say.
And that's how you price a bond!
* if you want a stable progressive economy there are a few rules- rule 1 is look after the people (all of the people- not just the ones that elected you- or your mates).
However should you be about to govern somewhere- please try the following and publish the data be transparent on its collection- it'll help trust me!
be transparent about where you're spending the money we are giving you and why. i shouldn't need to ask- you should be telling me.
If that is too complicated- go back to rule 1, and don't pay consultants to tell us how you're looking after our best interest even though you're looking after yourself and your mates at our expense.
- facilitate ease of access to quality education for all residents (not just one group citizens or otherwise)
- implement a progressive simple tax system for personal and corporate taxes
- commit to significant government funding of quality infrastructure
- implement a safety net for worst off - with an incentive based route out of the net
- Provide ease of access to healthcare for all
- Facilitate or provide ease of borrowing for innovation
- Implement and adhere to strict rules on corporate governance and finance
- Implement and adhere to strict rules on political finance and lobbying
- Implement and adhere to strict rules on political finance and lobbying
- Implement and adhere to strict rules on political finance and lobbying (maybe 3rd time lucky for the aspiring politician)
- Implement strict term rules on all political positions, career politicians are of no use to anyone, neither are business folks using political office for personal gain. You got a political job, it should be you taking one for the team, thanks and now you're done- go back to your old life, appreciate your help- no you can't have any of my money to get elected again.
- Very strong enforcement of law on all of the above by non political appointees
- Well funded neutral and quick transparent legal system that facilitates the above