READING ECONOMIC INDICATORS INTRODUCTION

With such a wide range of economic statistics and data being released every single day, the following section will illustrate how to analyse these important sources of economic information, and how to use that analysis to make solid trading decisions.

The condition and direction of the U.S. economy is a major driver of interest rates and bond prices. Even though no one knows for certain what the future holds, bond traders profit when their expectations for the economy are correct. Bond market participants follow economic indicators closely, looking for signs of change that might affect future supply and demand so they can position themselves accordingly. When economic indicators exceed or fall short of market expectations, bond prices can move quickly and sharply in response.

Monetary policy makers at the Federal Reserve also closely follow and interpret economic data releases, looking at the indicators relative to expectations as an indication of the outlook and direction of the economy and inflation, which can affect Federal Reserve policy. Federal Reserve policy has a significant impact directly on short-term interest rates and indirectly on longer term interest rates, which in turn affect bond prices.