Salomon Brothers Understanding The Yield Curve Pdf
Salomon Brothers Understanding The Yield Curve Pdf - https://ssurll.com/2tcKUv
Interpretation of movements in the yield curve is a classic tool for analyzing the state of the economy. Changes in the yield curve reveal the behavior of investors. We can see how investors in the capital markets have reacted to rising or falling interest rates over the past few years.
But what do we really know about the yield curve? It is widely believed that a rising yield curve represents the rate of inflation . A rising yield curve suggests inflation is on the horizon and prices are rising faster than the economy. A falling yield curve suggests deflation and prices are falling faster than the economy. Hence, we might say that higher yield levels in the bond market are an early indication of inflation. The National Bureau of Economic Research estimates that inflation is currently running at 2.8 percent. Any readings below 2 percent represent an expansion in bond yields of some sort.
The yield curve is a simple, straight, flat graph denoting the yields offered on Treasury bonds in order of maturities. The Yield Curve is a commonly accepted measure of not only interest rates, but of the expectations of future inflation. Curves of current inflation expectations can be traced back to the mid-1930's when the Federal Reserve created interest rates to combat a bout of rampant inflation. Historical rates are plotted on a graph so that bond buyers can compare yields offered on bonds of different maturities. As the graph progresses, each time interval (e.g., weeks, months) is plotted on the y axis of the graph. By the time bonds mature, the curve has “staggered” up from the short end, or the lowest value on the curve, to the long end, or the highest yield on the curve. The yield curve is thought to provide early warning of the inflation rate , as though the rate of inflation is a country's interest rate. d2c66b5586