Stockmarkets are starting to reap the benefits of significant quantitative easing and record low interest rates by Central Banks worldwide. In the US for instance there have been three doses of QE and the Federal Reserve indicated that they will keep rates low until 2015 as well as buy $40bn worth of mortgage backed securities.
But this is not the primary reason for the positivity in markets. Central Bank interest rates form the basis of global rates in trading banks, bonds etc. and with 10-year Government Bonds, which is considered a safe investment, at low yield levels investors are looking elsewhere for greater returns on their money. Even Bond rates in the struggling economies of Europe have dropped (Table 1). This indicates that investors are more comfortable about these economies in that the country doesn’t have to offer higher yields on Bonds to attract investors. With this low return on the Bond market investors are attracted to the higher yields on stock markets (Table 2).
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.