Saturday, December 16, 2017

Friday Thoughts

Yield Curve
The yield curve has started flattening. When comparing January curve to December curve you can see a significant move towards horizontal. In some circles the yield curve is very impressionable.

     Why is the yield curve important and why is it [usually] sloping upward? Think about the Expectation Theory. For starters, yield is on the y-axis and maturity on the x-axis. Short term is inherently less risky meaning the interest you receive on bonds will be lower. When you start moving out - 10 years, 20 years, 30 years - the yield will increase to account for the risk of time. Most cases you'll see a fairly significant difference between the 10 year and the 30 year. Why, besides time risk?