Hi everybody, I have two questions, one more general, the second specific to question 18.
In question 17 they look at teh effects of changes in business profits, central money suppy, gov. spending relative to tax receipts, etc.
In general one can state, that increases in GDP or in general a strong economy would be negative for corporate bond investors in that such economic growth and aggregate demand would place upward pressure on bond yields.
Why is the actually upward pressure on the bond yields? Because everybody wants to buy bonds and prices go up and therefore yields down, or because it is not as cheap to borrow money because…
Just would like to have an easy explanation.
with regards to q 18, if short term gov. rate (1month) is higher for the uk, the uk is favoured. but how do we now what the REAL rate is?
thank you very much for your inputs.