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How bond market performance correlates with economic growth?
Unless you are personally involved with investments, the world of stocks and bonds can be quite the mystery. While some may envision a huge room in New York filled with men and women madly yelling and waving their hands, there is a method to the madness. The correlation of bond market performance and the economy is a direct ruler of measurement for world wide growth and success of a country.
The term 'bull market' is a key to how an economy is faring. A bull market references stocks and bonds that have a continual and marked rate of increased value. The bond market performance encourages investors and keeps that arrow rising on the charts. In turn, new companies will be more likely to launch their companies into the public arena for the potential investors. It is often a win-win situation for everyone involved.
Typically, a bull market is also indicative of a strong economy with low unemployment. This type of market can continue for quite some time, gauging growth and opportunity for a country. Start up companies are more willing to establish themselves in an economy that is showing an improvement.
The psychology of a strong bond market performance can work in reverse. Due to the increasing value, few investors will want to sell and that creates an environment where the only new investments will be found in new companies.
As long as there exists an ebb and flow of bond market performance, the country and economy can continue to experience a marked increase of success. The problem occurs when only growth occurs. It can continue for a certain length of time before the bubble literally bursts. The what-comes-up-must-come-down theory can be a short term lowering all the way to a full recession.
The professionals that watch over the market are constantly monitoring the fluctuations and attempt to counter act the possibilities of stock and bond collapse. During a collapse, the value decreases, investors lose money and fewer investors will be on the horizon. While this is not the direction anyone wants to see or experience, it does happen about every ten years or so.
The stock and bond community seem to have a short memory. When a collapse occurs, whether gradual or sudden, investors swear they will never fall prey to this situation again. As a bull market begins and then continues enough time lapses so that the investing community forgets the former falling prices and they start the process all over again. Everyone is encouraged by the hope that the powers that be will keep the investment engine running as they reap the rewards of a continually positive bond market performance.
As with everything, the key is in the balance and involves common sense. Buying when the prices are lower and selling once the price reaches a reasonable profit margin. The problem occurs when people become a bit greedy. Thinking they can hold out for a higher profit. While the economy still appears to be strong, this discourages the ebb and flow process and leads to an inevitable burst.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Bond Investment4 Mar 2010|