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· Posted on
February 21, 2024

Inflation has slowed to a two-year low: US economy lets out a collective 'Phew!

The US has announced that annual inflation has dropped to 3% year on year.

What's the key learning?

  • The main drivers of this slowed inflation are the cost of many everyday items, such as fuel, used cars, and even the cost of a holiday has dipped.
  • With bonds, you lend money to a company or government and the returns change depending on the riskiness of the borrower and the length of the loan.
  • Since inflation and interest rates are two of the key factors that impact the bonds value, you're bound to see movements in bond yields when large announcements are made.

👉 Background: Governments around the world measure inflation on the goods and services from year to year. It gives them a sense of how much the cost of living is rising in the economy.

👉 What happened: Now, the US has announced that annual inflation has dropped to 3% year on year. And the main drivers of this slowed inflation are the cost of many everyday items:

  • Fuel
  • Used cars
  • Even the cost of a holiday has dipped (ie airfares and hotels)

👉 What else: Other ripples in the market include the two-year bond yields dropping, because traders reckon the US Federal Reserve might not be as gung-ho about raising interest rates this year.

What's the key learning?

💡Bonds are another form of investment which is pretty much like lending money to a friend... They promise to pay you back your original investment at a certain time, plus interest.

💡But with bonds, you lend money to a company or government rather than a mate. The returns change depending on the riskiness of the borrower and the length of the loan.

💡And since inflation and interest rates are two of the key factors that impact the bonds value, you're bound to see movements in bond yields when large announcements are made.

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