The Federal Reserve has announced they are “on-hold” through next year, and likely well into 2014. What kind of effect will that have on the stock market? Does that mean interest rates will stay low that entire time?
Maybe not.
The “bond market” will actually do a “daily” job of setting interest rates. The bond market helps to balance the supply and demand of buyers and sellers of bonds and all things fixed income. But, like stocks, anything with a number can be plotted on a point and figure chart. The patterns that emerge really tell a different story about interest rates.
Remember, when interest rates rise, the VALUE (price) of your existing bonds FALL in the market.
When rates (yields) FALL, the value of your bonds RISE.
There is a direct inverse relationship between interest rates and bond yields. If one side goes up, the other side goes down, much like a see-saw.
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