Yesterday the 10 year US Treasury Bond did something it has not done in some time …. reach a yield of 3%.
The Yield Curve – Interest Rates
We have been preparing for some time a multipart series about interest rates and the yield curve its self, and with the recent move in rates higher (finally) the timing could not be better. You will see a lot about this in the coming weeks if you peer into the Financial Section on your computer, periodical or tablet view … so we wanted to prep in advance.
This discussion will be multipart analysis, discussion, education and conclusion …. we hope you enjoy (we think you will as there is a terrific conclusion).
While the chart above shows the most popular “Headline” rate for most, it is really just one part of a series of rates …. here is where our discussion is born… so let’s go!
Liking to keep things simple, this is a self drawn chart that we will build upon, but gets the point across.
The longer something takes, generally the more it should cost. (Greater risk of loss)
Said another way, the more time something takes, the more it should cost.
If you loan a buddy $100 bucks today to be repaid tomorrow, it is less risky than if you give it to him for a year and hope to get it back! Right?
Our self made chart shows just this, the longer the time, the greater the cost.
Looking again at our chart, we could say the term is anywhere from one day going all the way out to 30 years, with the afore mentioned 10 year term being near the right end of the chart.
This chart shows what could be called a normal yield curve or cost situation.
Next up … Change!
Have a Great “Yield Curve Discussion” Day!
John A. Kvale CFA, CFP