Economics
How Does the Fed's Policy Actions Affect Bond Price Discussion Paper

Question Description

I’m working on a Economics exercise and need support.

How does the Fed's policy actions affect Bond Price? What is your outlook for the bond market in 2020 and 2021?

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This is an extremely timing discussion board given the actions of the Fed in the last few day!!

As you have started the chapter on fixed income securities (bonds), here is a question for your discussion. I have included links to some articles and videos below. Don't panic, they are very short in most cases. In the first part of your post, discuss how the Fed's policy decisions can impact the bond market. Who would be most damaged by this Fed action, i.e. long term bond holders who hold till maturity or short term bondholders who plan to sell before maturity. Secondly, in your post, what is the outlook for interest rates and the bond market in the coming two years. Will the bond market flourish or flounder with the actions of the Fed. Please include an addition source for your conclusions, and reply to another poster.

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Final Answer

Attached.

Reading head: THE FED’S POLICY

1

The Fed’s Policy
Student Name
Institution Affiliation

THE FED’S POLICY

2

The Fed’s Policy
Fed had kept its interest rates low until 2015 when it announced a new policy which
stated that it would be raising Fed’s fund rates gradually. This was to be raised as the economy in
the U.S strengthened. So, this happened, and the interest rates were hiked by a quarter in
percentage point three times in only one year, that is, in 2018. This decision has an impact on the
bond market, that is, by making the pricing of bond sink lower. The impact caused on the rates
due to the hike on the bond would depend on the bond portfolio’s duration and the yield curve
where the portfolio would be situated (Martin, 2017). There is an inverse relationship between
interest rates and bond. An increase in the interest rates leads to the fall on bond prices, while a
fall in t...

puritymaruga (8006)
Rice University

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