The flattening of the yield curve occurs when short-term bonds have similar interest rates to long-term bonds, indicating economic problems and a possible recession. Short-term bonds have lower interest rates due to lower risk, and government bonds offer low yields. In times of economic uncertainty, investors move to safer investments, causing a flattening of the yield curve.
The flattening of the yield curve occurs when the interest rates of the wide and short inversions are vuelven more similar between yes. In a normal market, the shortest the place for an inversion is, the less will be its interest rate or return. The flattening of the yield curve generally indicates some type of economic problem, including an impending recession.
The return on a bond is its effective interest fee, based in any place where the bond is traded on the open market. While the bonds generally hold a fixed interest fee, called the cupon fee, which remains until the end of the year, the real yield of the bond fluctuates in the mean that the bond’s negotiating price changes according to the market’s caprichos. When a bono is enjoyed at the market, the operators will pay more than their nominal value, reducing their effective interest fee. On the contrary, if the operators have a negative opinion of a bono, they will negotiate its price at the bay, effectively increasing the interest fee or the yield.
Generally speaking, short-lived bonos have significantly lower interest rates than wide-ranging bonos. This happens because the reversers who buy good generally tend less successful in short-term inversions. With a short-term inversion, the reversers recover their money beforehand, which reduces the risk of not paying them money. Also, due to the fact that the inversion occurs in a short period of time, there is less exposure to inflation and to the prospect of greater future inflation.
The planning of the yield curve generally belongs to the Treasury of the high-ranking government, like the issuers of the government of the United States, which are the world standard. These highly ranked bonuses generally offer some of the lowest yields of any available inversion, with short-stakes bonuses offering the lowest yields. Without embargo, when the economy is in a bad shape, investors tend to change their money to extremely safe reversals. The increase in demand offers increases prices and reduces returns.
The initial effect of this avalanche of capital in bonds is to reduce the interest rates of the bonds to short plazo. In times of economic uncertainty, each inversion is suspicious. The average that reversers with less aversion to risk if they change to good, actions and other inversions of lesser rating, if they change to good of high quality in a wide plazo. This increase in demand causes the interest fees of these good companies, which causes the interest fees of all the good companies, causing the flattening of the yield curve.
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