CFA Practice Question
When investors are pessimistic about the market, the confidence index should have
A. a low value.
B. a high value.
C. a value over 85.
Explanation: The confidence index measures the yield spread between high-grade bonds and a large cross section of bonds. Technical analysts believe that during periods of low confidence, investors are less willing to invest in lower-quality bonds, thereby pushing up their yields, and decreasing the confidence index. A low index value is thus viewed as a bearish sign.
User Contributed Comments 5
| User | Comment |
|---|---|
| mtcfa | Well if the spread is widening, then isn't that a higher value????? |
| egghead | that's a ratio with high quality bonds in the nominator. |
| mc42086 | numerator |
| mc42086 | Divide average yield high grade bonds by intermediate bond yields. The ratio rising would be a bullish sign. |
| manju79 | Spread is not widening. Since people are unwilling to invest in low yield bonds, very low yields do not exist (pushed out of market) |