Bond market and stock market

Bond market and stock market

            The value of the bonds and the prices of the stocks usually move in opposing directions. This is the reason as to why the respective bodies of the government should keenly make use of these bond markets to enhance their policing mechanisms. The bond markets can have a great impact in drawing the government policing back when not well considered. This is because the value of the stocks goes high when the economy of a specific country is running smoothly. For the economy of the country to run smoothly funds should be well available for use (Hammoudeh et al, 279-291). This will be achieved because enough capital ensures that all the needs of a country are catered for hence a healthy economy. The available challenge in ensuring this comes from the burden of getting the funds. This is what may lead to the country end up issuing a bond. The issuance of the bond will hence ensure the availability of the required funds. The bonds will hence n turn leave behind a debt for the country.

Through the funds from the issuance of the bond, the government will end up determining the prices of the countries stock and this may even lead to the making of the wrong decisions. This may result in high bonds and hence the value of the stocks tends to go down. The decisions and policies may not be accurate mainly because the use of the bond markets means the government uses debts to make its decisions. In this manner many investors will tend to take the advantage of high stock prices hence selling their bonds and at the same time purchasing the available stocks when the economy s booming. On the other hand when the economy slows consumers end up buying less and the stock prices go down. This will then end up leading to instability in the stock market (Mensi et al, 6-8). This will hence, in turn, bring about difficulties in the predicting future relationship of the bond markets and stock markets. In some rare cases, the value of bonds and the value of the stocks may go up at the same time. This usually happens when there is much money. The value of both the stocks and the bonds may still go down when the available money is less. The government should be keen while issuing bonds to ensure that right decisions and policies are considered to ensure good matching of the stocks and the bonds.

The bond market and currency prices

The currencies of any country are essential in the economic activities of the country. This means that the government should be very keen while coming up with policies concerning the status of the currency. The government should ensure the good status of the currency. The currency on the other side is affected by various factors one of the factors being the flow of the money in the economy as well as the available money in the economy (Felman et al, 64-66). This means that the bond markets affect the currency prices of the country. The issuance of bonds by the government will create debt thus implying that limited cash is available in the money market. This will lead to the poor prices of country economy. This will hence drive to the fact that that the bond markets may result to the government coming up with the wrong predictions of their currencies which usually means the country will incur losses as a result of low prices of commodities resulting from poor currency prices.

The government should, therefore, ensure good measures while issuing a bond or involving itself in purchasing a bond. This is to ensure the well being of their currency. The currency is actually very useful in coming up with policies mainly because any borrower, contractors, and investors evaluate their economic plans and growth through currencies. When large amounts of money are injected into the money market, fluctuations of currency I recorded. In these fluctuations, the government will hence face a tough moment in coming up with investment and economic decisions and policies (Felman et al, 64-66). The government should ensure that the issuance and purchasing of the bonds do not result in major fluctuations in the economy this can be mainly controlled by ensuring that the cash inflow almost matches the cash outflow. The government should ensure this for the purpose of enhancing its trade with other nations. This is so because, in the trade market, the other nations most prefers to carry out trade activities with a nation which ensures currency stability.

Conclusion

The consideration of the bond markets by the government while coming up with policies is very essential. This is because the bond markets hinder the government from meeting its guaranteed obligations. This is to prevent landing o the wrong side of the underlined maters. The bond markets make it difficult for the governments to come up with the policies. For instance, this may come as a result of the fluctuations in the currencies, the value of the stock which may be influenced by the available bond markets and inflation which may also result of either debt which mainly come as result of the issuance of bonds. The above key areas may hence prevent the government from coming up with good policies.

Works Cited

Felman, Joshua, et al. “ASEAN‐5 bond market development: Where does it stand? Where is it     going?.” Asian‐Pacific Economic Literature 28.1 (2014): 60-75.

Hammoudeh, Shawkat, et al. “The dynamics of BRICS’s country risk ratings and domestic stock             markets, US stock market and oil price.” Mathematics and Computers in Simulation 94        (2013): 277-294.

Mensi, Walid, et al. “Do global factors impact BRICS stock markets? A quantile regression             approach.” Emerging Markets Review 19 (2014): 1-17.