Question: Why bond holder are happy with the higher GDP?
Answer: Higher GDP means more sales and more revenue in general, and If a firm is producing profit with higher sale, which would generate more profit. And firm would be able to serve any due interest and debt comfortable and reduces overall default and, bondholders feel more comfortable.
Question: What is the possible negative effect of overall economic activity increases in a country?
Answer: More economic activity results in the more profit for a firm but at the other hand the economy closer to its potential GDP and require more resources to produce more and required resources may not be available at low cost which results in production costs. Which leads to inflation, and material and labor costs rise faster and eats the corporate profit as well and in some cases it can reduce the profit as well from the previous results, even after having higher sales and revenue and reduces the overall debt coverage. And possibility of default can also increase.
Question: How does interest rates are affected?
Answer: In general, this is affected based on the supply and availability of credit. Usually, credit is made available by the domestic household. If a household is producing more and consuming less. Hence, credit is created by him. Means whatever is additional would be borrowed by some borrower and in future it would pay it back with the interest. So if more is available for credit, borrower can get it at lower interest rates.
Question: What is the central bank in United states?
Answer: In United states Federal Reserve is known as Central Bank.