Which of the following is/are true about the confidence index?
I. It measures the spread between high-grade bonds and a broad cross-section of bonds.
II. It indicates investor confidence and their appetite for risk.
III. A high value of the confidence index is interpreted by technicians as a bullish indicator.
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A. B. C. D. E. F.A
The Confidence index is the ratio of the average yield on 10 top grade bonds to the Dow Jones average of 40 bonds. The index measures the difference in yield spreads between high-grade bonds and a large cross-section of available bonds. An increase in this index implies that the yield spread between the bonds has narrowed. From a demand perspective, this will happen when the demand for riskier bonds rises i.e. when investors are bullish. Similarly, a fall in the index value indicates that investors are bearish.