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Central banks have been buying up treasury bonds, thereby lowering the yield. They are basically saying "Hey rich people with cash, if you want to get a return
by amin 5y ago
Central banks have been buying up treasury bonds, thereby lowering the yield. They are basically saying
"Hey rich people with cash, if you want to get a return on your money, you have to stop investing in risk-free government bonds, and start investing in businesses in the real economy"
The Fed has basically 'pushed' investors out of bonds, and into equities and real estate. This partly explains the absurdly higgh gains we saw recently in those asset classes. But now that inflation is getting out of hand, the Fed might reverse someday it to slow down the economy and keep inflation low.
- errantmind 5y agoHow much money is flowing into any businesses that matter? I don't imagine shoving more money into the S&P is having that much of an effect on 'the economy'
- reducesuffering 5y agoIt's a good question, but we must consider downstream effects. When one buys SP500, it pushes up the price in price/earnings for those companies, making them slightly less attractive investments and therefore other small companies slightly better investments. When, residually, some of that money flows to increasing the price of a struggling $1b company (efficient market hypothesis), they're now able to be capitalized better in investing in a second factory, or affording their debt as to not go bankrupt and have further knock-on economic effects.