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Finance a la shmoop...what is the baron's confidence index

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well Barron's is an old-tiny publisher of Wall Street data and today it's a

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stodgy magazine catering to sophisticated financial readers well the [Magazine of barron's confidence index]

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magazine has fiercely opinionated readers and it began to take advantage

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of them first with simple old-school polls managed by its journalists before

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computers were really a thing and then it began to codify an index the densely

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packed brain power that it was surveying as to where the markets and the world

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was heading so one outcome of this outbound research effort was the bond [Bond index equalling Barron's confidence index]

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index or Baron's confidence index which is calculated by dividing the average

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yield to maturity on what is generally double-a and triple-a grade bonds by the

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average yield to maturity on what is generally double B ish grade bonds got

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it? So triple A double A over the triple B'ers.. Well why would

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you do this strange calculation in the first place

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well it reflects its audience's attitude about credit risk the presumption among

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pretty much everyone is that the safe bet ie US government paper is just a [100 dollar bill stamped safe]

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reflection of inflation more or less and everything else or at least all other

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credit is pegged to that very safe US paper so it sets the standard against

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which the riskier credit is measured it's stable since the Barron's index is

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a bond risk index it is in essence a calculation of its audience's confidence

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in the US economy relative to everything else generally speaking in a good or

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growing economy there are very few bankruptcies or defaults why well partly

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just because times are good and people are buying you know stuff [People walking in a shopping mall]

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yeah even stuff like that and if a given company individually stumbles well there

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are often competitors who are doing well and who would likely acquire that

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company maybe not for a huge premium but at least they'd pay off the company's

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debt so it would be money good right for those triple B's so it's bonds even if

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lowly rated would go back to par and everyone would get paid off as planned [company and competitor smiling]

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so the index isn't an absolute measure of anything really it has to be viewed

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relative to wherever it was trading last week

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last month last year when investors are confident the spreads for bond yields

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are narrower and the ratio is higher.. well think about the intermediate

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bond yields but when the ratio is high and increasing it means that faith and [Bond yield graph appears]

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the economy is growing right because that denominator yield shrinks because

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grade triple B's instead of having to yield 12 percent yield like ten or eight

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and inversely the ratio is lower and decreasing demonstrating less faith in

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the economy when things go the other way and when the economy is really in the

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toilet well expect to hear a lot of this sound [Tumbleweed flies past a man in a clothing store]

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