Government bond prices and monetary policy

<body><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td> <font face="garamond, times new roman, times" mstheme> <p> Liquidity </p> <p> </p> </font mstheme> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td valign="top" width="1%"><font face="garamond, times new roman, times" mstheme> <p> </p> </font mstheme></td><td valign="top" width="24"></td><td valign="top"> <p>This page uses frames, but your browser doesn't support them. </p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Bonds: Liquidity</font></strong></p> <p><strong><em><font face="Arial Narrow" size="2" color="#00FF00">Buy on the up arrows,</font><font face="Arial Narrow" size="2" color="#C0C0C0"> </font><font face="Arial Narrow" size="2" color="#FF0000">sell on the down arrows</font></em></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>This tool is intended to predict bond prices based on government policies, using data on monetary policy available at the time, specifically interest rates. For comparability government bond indexes have been rebased to set year-end 1994 at 100. </strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">In each chart the bond price index is shown as the thick white line on the right hand axis. The main explanatory variable, interest rates uses the left hand axis, shown as </font><font face="Arial Narrow" size="2" color="#FFFF00">the thin yellow line</font><font face="Arial Narrow" size="2" color="#C0C0C0">. Buy & sell signals are shown as </font><font face="Arial Narrow" size="2" color="#FF0000">red arrows </font><font face="Arial Narrow" size="2" color="#C0C0C0">embedded in  the price index.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">This tool works on the assumption that governments rarely make a change in policy all at once, but spread out over a number of intermediate steps, so the effects of a change create a trend over time that investors can exploit. However, in times of crisis this is not the case, so signals  may be too late. Buy signals are generated when interest rates begin to fall. Sell signals arise when the converse applies. Noise reduction methods have been employed to minimise the number of signals.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Owing to the conversion of legacy currencies into Euros, analysis is provided on a common bond market denominated in Euros, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.</font></strong></p> <hr color="#FF0000"> <p align="center"><font size="2">[ <a href="global_asset_allocation_sitemap.htm" target="_top">Site Map</a> ] [ <a href="index.htm" target="_top">Home</a> ]</font><font size="2" face="Arial"><br> </font><font size="2">[ <a href="Chart_Library.htm" target="_top">Chart Library</a> ] [ <a href="ChartLibrary_government_bond.htm" target="_top">Bond Charts</a> ]</font> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td><font face="garamond, times new roman, times" mstheme> <p align="left"><font face="Arial Narrow" size="1" color="#C0C0C0">Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Securities Authority. An Independent Financial Adviser. Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: January 05, 2001</font><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>.</strong></font></p> </font mstheme></td></tr></table></body>