It’s A Global Issue Now! Bonds Yields and Rates. Bundesbank Halts Interest on State Cash!
How rate increases have evolved into a pressing global issue.
Thank you for your commitment to trusting SWS to provide helpful, educational, and interesting material.
Ready, Set, Read!
In finance and economies, one country's financial markets can greatly impact the rest of the world. There has recently been much talk about rising bond yields and interest rates. This is a complicated issue that affects many countries and has important consequences. Let's explore this issue together and understand what it means for the world.
The Basics:
What is a bond yield?
Bond yield is the money an investor can make from a bond. It is usually shown as a percentage and shows how much income the bond will give each year compared to its current price.
What is an interest rate?
Interest rates are the money you have to pay back when you borrow money or the money you earn when you lend it. It is a percentage of the total amount you borrowed or lent over a certain time. The central bank or monetary authorities usually decide the interest rates, and they affect things like how much it costs to borrow money, how much you earn from saving, and how much you make from investing in bonds.
How do they relate?
When central banks increase interest rates: New bonds will offer higher interest rates (coupon rates) to attract investors because they want to keep up with the higher overall interest rates in the economy. This makes existing bonds with lower interest rates less appealing, so their prices decrease. When bond prices fall, their yields go up. When a new savings account offers a higher interest rate, people might move their money from older accounts with lower rates to new ones.
When central banks decrease interest rates: New bonds may have lower interest rates (coupon rates) because borrowing money is cheaper for everyone. This makes existing bonds with higher interest rates more attractive, increasing prices. When bond prices rise, their yields go down. When banks lower their savings account interest rates, people might keep their money in older accounts with higher rates because they are more profitable.
To summarize, bond yields (the returns on bonds) also tend to go up, and bond yields tend to go down when interest rates go down. Understanding this relationship can help new investors make informed decisions about their bond investments.
Risk Management Using Psychological Techniques.
Our virtual webinar will be announced on Friday! Sign up for free below!
Bundesbank Halts Interest on State Cash!
It’s a Global Issue! What does this mean!?
Bundesbank Halts Interest on State Cash" means that the German central bank, the Bundesbank, has decided to stop paying interest on deposits made by the German government or state entities. This led to millions of dollars being moved from one bank account to another.
—
The US Federal Reserve wields significant power over global financial markets. When they increase interest rates, it also affects other countries, leading to problems for emerging markets and other economies. This can result in currency devaluation, higher borrowing costs, and potential financial crises.
Rising bond yields and interest rates are a global concern with wide-ranging implications. No economy is isolated from the impact of rate increases as financial markets become more interconnected. Effective management requires coordination among central banks, policymakers, and international institutions. Investors must prioritize diversification and risk management. Policymakers must balance economic growth and inflation containment, considering global repercussions. Cooperative efforts are needed to mitigate adverse effects and foster stability in an interconnected world.
Subscribe to our premium for detailed trading notes.
