The yield of a specific corporate bond depends on numerous factors, the most important is the financial health of the corporation and prevailing interest rates. Several bond rating services provide investors with an evaluation to help judge the bond's quality. The Confidence Index, developed by Barron's in 1932, uses corporate bond yields as one of its components. If investors are optimistic about the economy, they are more likely to invest in speculative bonds, thereby driving speculative bond yields down, and the Confidence Index up. The Discount Rate is the interest rate that the Federal Reserve charges member banks for loans.
Banks use the Discount Rate as the base for loans made to their customers.
The Discount Rate is set by the Federal Reserve Board which consists of seven members appointed by the President of the United States. Instead, it only changes when the Federal Reserve Board feels it is necessary to influence the economy. During recessionary times, the Fed will ease interest rates to promote borrowing and spending. During inflationary times, the Fed will raise interest rates to discourage borrowing and spending, thereby slowing the rise in prices. Federal Funds Banks with excess reserves can lend their reserves to banks with deficient reserves at the Federal Funds Market.