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Yield Curve
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Key Concepts:
Terms in this set (13)
Government Bond
IOU viewed as Risk free
Interest
What you are paid to lend
Spot
The spot rate, also called "spot price," is based on the value of an asset at the moment of the quote. ... As a result, spot rates change frequently and sometimes dramatically.
Discount
How far from the par price below
Zero coupon
You buy an asset at a "discounted" price. The discount is your "coupon" or return.
Yield
Cash flow/Price
Normal yield curve
A normal yield curve forms during normal market conditions, when investors believe there won't be any significant changes to the economy (e.g., interest rates) and the economy will continue to grow at a normal rate.
Flat yield curve
A flat yield curve indicates that the market is sending mixed signals to investors, who are interpreting interest rate movements in various ways
Inverse
Bond prices move up as rates move down. Bond prices move down as rates move up.
Term Structure of Rates
The term structure of interest rates - known as the yield curve - is the relationship between interest rates or bond yields that differ in their length of time to maturity.
Central Bank
The Federal reserve attempts to moderate inflation and National growth by manipulating US rates.
Inverted yield curve
Inverted yield curves are uncommon; they form when long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality.
Premium Bond
How far from the par price above
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