Executive vice president Colin Robertson of Chicago, Illinois, has spent the last 20 years working with Northern Trust, a Chicago-based investment firm. As a banking executive, Colin Robertson currently heads fixed-income investments for both individual and institutional investors. Fixed-income investments are government and corporate bonds and are affected by economic growth.

1. THE EFFECT OF ECONOMIC
GROWTH ON BONDS
Colin Robertson

2. INTRODUCTION
 Executive vice president Colin Robertson of Chicago, Illinois, has spent the last 20
years working with NorthernTrust, a Chicago-based investment firm. As a banking
executive,Colin Robertson currently heads fixed-income investments for both
individual and institutional investors. Fixed-income investments are government
and corporate bonds and are affected by economic growth.
The relationship between the bond market and the economy is proportional.
Simply put, interest is the cost of money. During a strong economy, people spend
more money and the demand for money is higher, which increases the interest
rates (i.e., the cost of money). Furthermore, economic growth spurs inflation, and
to check inflation, the US Federal Reserve boosts interest rates to slow down the
economy. As a result, short-term rates go up and long-term rates follow suit.
Alternatively, when the economy slows, interest rates fall.With the demand for
money decreasing, consumers and businesses are less likely to borrow money,
which contributes to lower rates.The Federal Reserve might reduce short-term
rates to encourage borrowing and, consequently, long-term yields (i.e., bonds) fall
in anticipation of slower economic growth.