What would be the impact of hike in interest rates on the equity and debt market?????

Answer 1

Increase in interest rates lower the bond prices and the equity market. The debt market will be lower with the increasing interest which reduces the company's ability to leverage money to invest.

Answer 2

Most investments are valued compared to other investments. If interest rates go up, for the most part, investors require higher yields on other investments, which causes their value to go down. For instance, lets say you have an investment that pays $1/year. If you required a 10% return on your investment, you'd be willing to pay $10 for that investment ($1/10%). However, if because of a changing market, you now wanted 11%, you'd only be willing to pay $9.09 ($1/11%). That's the theory. In the real world, short term debt would reprice in line with Fed changes. However, the long term bond market tends to have a mind of its own, and the Fed doesn't have much control over it. In spite of short term rate hikes of 4.25% in the last few years, rates in the long term bond market are only about 1% off of their lows in the same timeframe. Higher interest rates are only one factor for the market...albeit a negative one.

Answer 3

How does this affect you and me? Well, the federal funds rate directly affects our pocket book. The immediate affect will be felt through our credit card rates as it would increase along with our home equity line of credit. While the federal funds rate does not directly affect mortgage rates, it too will likely increase (Mortgage rates are usually determined by the 10 year Treasury bond). Borrowing money will get more expensive. see http://ibooyah.com/blog/2006/08/the_fomc_decision_is_1.html for more.

Answer 4

Especially bad for debt. A big rise hurts both as bigger competition for funds