The fall in US markets today and the hike in treasury yield rates by the FED, do all these ongoings indicate towards inflation and recession?
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No it doesn’t really mean recession.
Yes you can say inflation is a concern. But the fall in the US equity markets is majorly due to the fact that if the Bond yields are rising ,investors tend to move their funds to less risky asset classes such as Treasury bonds. When the US Govt. is offering higher yields to people, they don’t prefer investing in highly risky asset class like Equity when the returns on safer investments increase.
So we can say fall in markets is due to hike in interest rates which is due to the fact that Fed is concerned about inflation, right?
Yes correct.
Okay. So now if inflation is a concern, and Fed also plans to hike interest rates multiple times this year, the investors should park their money in short term bonds rather than long term bonds, becuase the long term bonds would be in the radar of inflation as compared to short term bonds. What do you think?
Yes but like it is a mix of all the factors. This interest rate hike will go on for a temporary period. So yes, maybe during that time investors might want to invest in short term bonds but their long term view about the economy still says intact and is positive and as a result long term bonds don’t fall much.
okay!