What does market efficiency in debt markets imply?

Market efficiency in debt markets suggests that market prices incorporate all available information relevant to the securities being traded. This includes not only historical data but also current information such as economic indicators, interest rate forecasts, and other pertinent financial news. When a market is considered efficient, it means that the prices of debt instruments reflect their true value, and thus any investor cannot achieve consistently higher returns without assuming additional risk.

In an efficient market, any new information is quickly absorbed and reflected in market prices, leaving little room for arbitrage opportunities. This efficiency is crucial for investors because it fosters a competitive environment that ensures securities are fairly priced based on their risk and the expected returns.

The other statements do not accurately capture this concept. Claiming that prices only reflect past values or do not incorporate all available information suggests a degree of inefficiency in the market. Additionally, suggesting that prices are controlled by central banks implies an unnatural influence on market forces, which contradicts the principles of market efficiency.