The Bond Market Research Paper Example | Topics and Well Written Essays - 1250 words

The Bond Market - Research Paper ExampleOn the other hand, corpo stride debt refers to the property owned by a business, which can serve as an income distress absorber to a specific class of stakeholders. This paper intends to intimate the issues that surround bond market place in the current market. The U.S. federal official Reserve (the Fed) plays a progressively active role in the performance of the sparing and financial markets with its numerous tools. How does Federal Reserve policy affect the bond market? Essenti everyy, the Federal Reserve plays a key role in providing a monetary climate, which is intended in promoting economic stability and simultaneously maintaining consistent economic growth. The Federal Reserve strives to maintain the peaks and troughs at minimum levels. It is impertive3 to note that the Federal Reserve accomplishes their role through manipulation of two use up rate levels (Brett, 17). They include the Federal Funds rates and the Discount Rate. The Fed eral Funds rate refers to the rates banks charge each other to borrow reserves overnight while refers to rate the Federal charges for bank reserve borrowing. It is significant that, changes in some(prenominal) rates have a direct impact on the bond market, turn out levels. It is imperative to note that, the corporate bonds always yield more than the authorities bonds. This is to account for the risk. The Federal Reserve plays a key role in influencing the bond market by controlling the prices and rates of bonds. This enhances controlling of the ostentatiousnesss rates. For instance, investors who buy bonds with a maturity period longer than a couple of years ago have augmented risk disclosure to the level of inflation and its attrition of expected value cash flow values (Brett, 15). However, the Federal Reserve moderates this situation by targeting the level of inflation because inflation expectations have bigger shock on the echelon of interest rates for prolonged maturity bon ds than shorter outcome consequently, regulation of the bond market. For the case of bonds with long maturity number of years, the Federal Reserve endeavors to regulate inflation rates. This is because, the levels of inflation directly affects the inflation of expectations consequently increased level of interest rates for longer maturity bonds than shorter maturity bonds (Brett, 16). Fundamentally, the Federal Reserve directly controls the shorter maturity yield levels. The influence caused by the Federal Reserve on the interest rates consequently, significant change is indicated in the levels of yields. The yield curve normally represents the yield market levels. More over, Brett asserts that, the current bull market in bonds will only end if inflation rates rise. This implies that, the current economic status is sluggish and it is characterized by unemployment and high rate of inflation. Bibliography Brett Arends. Bonds- Heading from Bull Market to Bubble. The Journal of The Wall Street. 15.9 (2012) 15- 19. Print. What happens to interest rates as bond prices rise? The bond markets are passing active. The interest rates are constantly changing in response to numerous factors, which include changes in demand and supply of credit, market psychology, economic conditions, monetary policy, Federal Reserve policy and exchange rates. It is significant to note that, as interest rates change, a consequent change in values of all bonds in the market place is expected. For instance, when, interest rates increase bonds with longer maturity periods are immensely affected compared with those