Hey tradomaniacs,
YIELDS are still in focus and could cause problems for the stock-markets.
Why is that so important?
First of all you have to know that there is a difference between capital market rates and the Federal Funds Rate.
The Federal Funds Rate is an control mechanism to keep inflation, demand, supply and more economy related points balanced.
Capital markets refer to the places where savings and investments are moved between suppliers of capital and those who are in need of capital.
The rate of the capital market depends on the current risk which is increasing with the inflation.
Example:
Let`s say you borrow money to a customer with a duration of 1 year.
In this time-period you expect inflation to increase, means the money that you will earn with this deal will have less value than now.
As a compensation you claim a higher interest-rate in order to compensate the depreciation 👉 This is basically why YIELDS are currently rising!
Additionally you claim a bonus for special risk as higher inflation could cause a payment default of your customer.
This shows that Central Banks have way less impact on capital market rates, hence it is way harder to predict when YIELDS stop rising.
Why could that be a problem for stocks? Inflation is good isn`t it?
Simply because rising interes-rates mean less demand in credits due to higher expenses 👉 Less investment 👉 Less consume
When you look at this context you could assume that we kinda stuck in a loop.
1️⃣ FED prints money and causes inflation 👉 Bad for dollar and good for stocks
2️⃣ Capital market rates rise due to inflation 👉 Good for dollar and bad for stocks
...and so on...
I hope this helps you to understand why the current market is so choppy.
LEAVE A LIKE AND A COMMENT - I appreciate every support! =)
Peace and good trades
Irasor
Wanna see more? Don`t forget to follow me
YIELDS are still in focus and could cause problems for the stock-markets.
Why is that so important?
First of all you have to know that there is a difference between capital market rates and the Federal Funds Rate.
The Federal Funds Rate is an control mechanism to keep inflation, demand, supply and more economy related points balanced.
Capital markets refer to the places where savings and investments are moved between suppliers of capital and those who are in need of capital.
The rate of the capital market depends on the current risk which is increasing with the inflation.
Example:
Let`s say you borrow money to a customer with a duration of 1 year.
In this time-period you expect inflation to increase, means the money that you will earn with this deal will have less value than now.
As a compensation you claim a higher interest-rate in order to compensate the depreciation 👉 This is basically why YIELDS are currently rising!
Additionally you claim a bonus for special risk as higher inflation could cause a payment default of your customer.
This shows that Central Banks have way less impact on capital market rates, hence it is way harder to predict when YIELDS stop rising.
Why could that be a problem for stocks? Inflation is good isn`t it?
Simply because rising interes-rates mean less demand in credits due to higher expenses 👉 Less investment 👉 Less consume
When you look at this context you could assume that we kinda stuck in a loop.
1️⃣ FED prints money and causes inflation 👉 Bad for dollar and good for stocks
2️⃣ Capital market rates rise due to inflation 👉 Good for dollar and bad for stocks
...and so on...
I hope this helps you to understand why the current market is so choppy.
LEAVE A LIKE AND A COMMENT - I appreciate every support! =)
Peace and good trades
Irasor
Wanna see more? Don`t forget to follow me
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