Sunday, September 16, 2007

Yield Curves*

  • map the relationship between spot rates and maturity
  • usually upward sloping because future investors require higher incentives to leave money in the market longer
  • a dip in the yield curve often predicts an economic slowdown --> RISK
    • short term prices fall - decrease in demand
    • long term prices rise - increase in demand
    • nervous investors buy long term securities because they fear what will happen in the near term
*content based on lecture notes from Jennifer Conrad's Financial Tools. UNC Kenan Flagler


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