Question-1: Which are the macro-economic factors you think can contribute for the corporate bonds Yield and Price?

Answer: Corporate bonds are affected by the following macro-economy factors.

• Movements in interest rates
• Inflation
• Yield-curve shape
• Corporate earnings

These all factors and their volatilities, will play a greater role in the deriving of corporate bond yields and prices, and their respective derivative products.

Question-2: What do you mean by GDP or Real Gross Domestic Product?

Answer: GDP is coming under the macro-economy. Which is abbreviated from Real Gross Domestic Product, which is a total value of goods and services produced in a single country over a given time period, usually one quarter. This is usually reported as a rate of change from the previous quarter as well as annualized.

Question-3: What is a GDP Gap and Potential GDP?

Answer: Potential GDP is the amount of GDP that the countries’ economy is capable of producing you can also say it’s a potential output of that particular country. Again, this is not an actual and only theoretical measure. The difference between actual and potential GDP is known as the GDP gap.

Question-4: Why Potential GDP is considered important for a country?

Answer: Potential GDS is important because for a country’s potential GDP is calculated using by its available resources like human labor, physical capital, and natural resources and talent available in country, young population, domestic consumption and production etc. And if actual GDP is below potential (which is usually the case for emerging countries like India) then some of these available resources are not being fully utilized. Like an educated resource is underemployed or unemployed.

Question-5: Why a potential corporate bond investor care about the GDP?

Answer: An investor has to think for the GDP Gap, Potential GDP and Actual GDP while or before investing in the corporate bonds.

• GDP Movement: Corporate revenue is highly co-related with the corporate bond revenues. A company or firm can produce more and generate more revenue and reduce its debt which reduces overall default risk on the bond.
• Interest Rate: To get the perfect interest rate, it uses the supply and demand of the credit. Usually, supply of the credit happens via the domestic household’s savings which is a supplier of the credit at low rate and demand for the credit increase if corporation or governments credit demand increases. And both are affected by the GDP and affect the interest rates.