Bond Markets to Fed: We Don't Believe You!

The stock market may steal the headlines, but in many ways its the bond market â?? be it mortgage-backed securities, government bonds, or corporate debt â?? that is the real star of the economic show. When the Federal Reserve seeks to regulate the economy, it does so by involving itself in the bond market, through buying and selling government debt and mortgage-backed securities. For years now, the Fed has been in the practice of buying bonds in order to keep interest rates low, which boosts the economy by making it cheaper for corporations and individuals to borrow. The indirect effect of low interest rates is higher stock and home values, but itâ??s always interest rates, rather than asset values, that the Fed watches most closely.