Wednesday’s press conference by Ben Bernanke was a perfect example of how the Fed has become the center of the equity market universe and how every signal (intentional, implied or imagined) of what the Fed plans to do in the future causes large market gyrations. The reaction was swift, with the boutique s collapsingin the two hours of trading after the Bernanke news conference and rippleeffects spreading to other global markets over night. As an investor who was lucky enough to buy last August, because the stock was trading below my estimate of its intrinsic value, I have to be consistent and sell, if the opposite holds now. Please click here to know more about our services on Forex Trading. At the risk of a gross generalization, institutional and wealthy investors are more demanding than individual investors; they move their money out of loser funds and into hot funds far more quickly than other individuals do. Looking at the graph, it seems clear that increases (decreases) in the Fed funds rate have caused the gap between treasury bond rates and fundamental interest rates to move in the same direction. Only 14.33% of the variation in the gap can be explained by the Fed funds rate and changes in real growth & inflation have far bigger impacts.
The real interest rate itself is a function of demand and supply for capital in the economy, which should be determined by expected real growth. We are far ahead of the organizations providing research and information on Indian capital markets since our advices are highly accurate and purely based on Technical and Fundamental analysis connected by firm experts. 2. Across the entire time period (1954-2012), the 10-year treasury bond rate averaged 6.11% and the fundamental interest rate average 6.83%, but breaking down into sub-periods suggest that there has been a shift in the relationship over time. 43) Bond ratings measure the interest rate risk of a given bond issue. Some companies issue dividends, some don’t. The old “buy and hold” advice, where we are told to buy good companies and leave them in our portfolios for posterity, makes little sense with growth companies, where markets often over shoot and under shoot. As the economy becomes stronger, and real growth increases, real interest rates should also increase.