How Does Economic Data Affect Investment Decisions?

How Does Economic Data Affect Investment Decisions? – Treasury yields are basically the rates investors charge when they borrow US Treasuries. This ratio varies over time and forms the yield curve. Treasury yields, especially the 10-year yield, reflect investors’ sentiments about the economy.

Prices and yields go in opposite directions. When investors feel good about the economy, they don’t like safer and more open government bonds for riskier investments. As a result, bond prices fall and yields rise. As investors become more cautious about the health and prospects of the economy, they are more interested in buying Treasuries, driving prices up and yields down.

How Does Economic Data Affect Investment Decisions?

There are many economic factors that affect government bond yields, including interest rates, inflation and economic growth. All these factors affect each other.

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Treasury yields are causing concern among investors around the world. Treasury yields are the leading indicator of all interest rates. Given the depth and resources of the US government, Treasury bonds are considered the safest assets in the world.

When the Federal Reserve lowers the benchmark interest rate, the federal funds rate, it creates additional demand for Treasuries because money can be held at a specific rate. This additional demand for Treasury bonds causes interest rates to fall.

The US Treasury issues four types of debt to finance government spending. Each has a different expiration date and different coupon payments.

When inflationary pressures appear, bond yields rise because bond products are less attractive. Additionally, inflationary pressures usually force central banks to raise interest rates to reduce the money supply. In an inflationary environment, investors need to earn more to compensate for the decline in purchasing power in the future.

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Strong economic growth usually leads to an increase in aggregate demand, which, if sustained over time, leads to increased inflation. There is competition for capital during periods of vigorous growth. As a result, investors have many options to achieve high returns.

On the other hand, Treasury yields must rise to find a balance between supply and demand for government bonds. For example, if the economy is growing at 5% and stocks are yielding 7%, few people will buy Treasuries until they do stocks.

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Negative interest rates and their impact on banking GDP, FDI and financial performance: The cases of Switzerland and Sweden

Petr Wawrosz Petr Wawrosz Scilit Google Scholar* and Sehawa Traksel Traksel Scilit Google Scholar

Faculty of Economics, Department of Economics and Management, School of Finance and Management, Estonska 500, 10100 Prague, Czech Republic

What Is Environmental, Social And Governance (esg)?

Received: March 11, 2023 / Revised: May 9, 2023 / Accepted: May 11, 2023 / Submitted: May 17, 2023

This article discusses how the negative interest rate policies used in some countries in the second decade of the 21st century affect some macroeconomic indicators and banking activities. We are mainly targeting Switzerland and Sweden. We use correlation analysis to reveal the relationship between interest rates and GDP, levels of foreign direct investment (FDI) and some indicators of bank performance. We find that negative interest rates (NIR) are significantly related to GDP levels in Switzerland and Sweden, but not to their effect on FDI. The share of bank deposits in GDP is also highly correlated with NIR. Other indicators of banking performance do not show a strong relationship between the two countries. Our evidence is consistent with the NIR not having a negative impact on economic growth and bank performance in Switzerland and Sweden. The value of FDI depends on many factors. It is the attractiveness of the country for foreign investors primarily in terms of political and economic stability and the general state of business activities.

To overcome the consequences of the global financial crisis of 2008-2009, central banks have taken several extraordinary measures to increase the money supply and force commercial banks to lend to other institutions. One of the most controversial measures was the implementation of the Negative Rate Policy (NIRP), which refers to keeping the normal target rate below the zero level. Sweden’s central bank is the first to introduce a negative interest rate (NIR). In July 2009, the Riksbank lowered its deposit rate to -0.25%. The European Central Bank (ECB) cut the deposit rate to -0.1% in June 2014. Denmark Sep 2014, Switzerland Dec 2014, Sweden Feb 2015, Norway Sep 2015, Bulgaria Jan 2016, Japan Feb 2016, Hungary Mar 2016 (Arteta et al 2016, Czudaj 2020). Commercial banks operating in these countries had to pay a small fee to the central bank to keep additional reserves with the central bank. The main purpose of these decisions (de Groot and Haas 2020) was to stimulate economic growth and bank lending to counter low inflation and the growing threat of deflation. Negative rates should encourage commercial banks to lend more to households and businesses rather than leaving it to central banks. This allows businesses to invest more at lower interest rates.

The introduction of NIRP has raised concerns about the impact the policy could have on bank profitability. The overall impact of negative monetary policy rates on bank profitability is not immediately clear. According to one of the authors (e.g. Borio et al. 2018), negative rates can reduce the profitability of banks by first reducing their interest rates (the difference between bank lending rates and deposit rates), due to the reluctance to introduce negative deposits retail. there is . do it. However, other groups of authors (e.g. Jobst and Lin 2016) were not in doubt and emphasized that other methods include the modeling of total funding costs as well as loan size, loan loss or fee and fee income. In addition, asset purchases and other measures that help lower interest rates increase the value of securities owned by banks and have a positive impact on their bottom line. These two results raise important questions about the effectiveness and effects of expansionary monetary policy.

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The main research objective of this white paper is to assess the impact of NIR on foreign direct investment, GDP and bank profitability in the two countries mentioned above, Switzerland and Sweden. The country was chosen on purpose. Although they differ in some respects, they also have a lot in common. These two countries have the same population. Switzerland has about 10.38 million inhabitants and Sweden has 8.6 million. Both currencies still maintain their home currencies in a floating exchange rate system, and both are considered safe havens.

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