Term Structure of Interest Rates
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Factabout interest rates

The yield curve slopes upwards (normal curve) if longrange rates are higher than shortrange rates

The curve slopes downwards (inverted curve) if longrange yield rates are lower than the shortrange rates.

The yield curve becomes flat when there is a small or not variation at all between the shortterm and longterm yield rates (Choudhry, 2011).
Normalcurve
Thegraph agrees with the liquidity preference theory the longrangeloan rates are higher compared to the shortrange loan rates possiblybecause of the wish of investors for a greater liquidity. Therefore,a premium is presented so as to encourage enough longterm venture(Malkiel, 2015).The expectation concept can also be used to explain the graph in thesense that the curve results from increasing inflationaryexpectations.
Invertedcurve
Twotheories can be used to explain this curve i.e. the expectationtheory and market segmentation theory. Based on the first theory, theinverted curve is as a result of decreasing inflationary expectations(Choudhry,2011).However, using the market segmentation theory, the curve is as aresult of a scenario where the supply for shortterm loans is lowerthan the demand when the need for longrange funds is lower than theamount supplied.
Comparisonbetween the two sets of curves
Thefirst yield curves show expected higher future interest rates whilethe second set of yield curves show expected lower future interestrates. Using the expectation theory, the second set of curves(inverted curves) shows an oncoming economic slowdown while the firstset of curves (normal curves) shows a strengthening economy(Ang, Bekaert, & Wei, 2008).Therefore, the expectation theory shows a higher prediction power ofthe interest rates in predicting, for example, the 2008/2009financial crisis.
Reference
Ang,A., Bekaert, G., & Wei, M. (2008). The term structure of realrates and expected inflation. TheJournal of Finance,63(2),797849.
Choudhry,M. (2011). Analyzingand interpreting the yield curve.John Wiley & Sons, Inc..
Malkiel,B. G. (2015). Termstructure of interest rates: expectations and behavior patterns.Princeton University Press.