15.11 - HISTORICAL YIELD CURVE People talk about interest...

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HISTORICAL YIELD CURVE People talk about interest rates going up and going down as if all rates moved together. The truth is, the rates on bonds of different maturities behave quite independently of each other with short-term rates and long-term rates often moving in opposite directions simultaneously. What's important is the overall pattern of interest-rate movement -- and what it says about the future of the economy and Wall Street. Rates are like tea leaves, only much more reliable if you know how to read them. The yield curve is what economists use to capture the overall movement of interest rates (which are known as "yields" in Wall Street parlance). Plot today's yields for various maturities of U.S. Treasury bills and bonds on a graph and you've got today's curve. As you can see on the adjoining chart, the line begins on the left with the shortest maturity -- three-month T-bills -- and ends on the right with the longest -- 30-year Treasury Bonds.    Normal and Not Normal Ordinarily, short-term bonds carry lower yields to reflect the fact that an investor's money is under less risk. The longer you tie up your cash, the theory goes, the more you should be rewarded for the risk you are taking. (After all, who knows what's going to happen over three decades that may affect the value of a 30-year bond.) A normal yield curve, therefore, slopes gently upward as maturities lengthen and yields rise. From time to time, however, the curve twists itself into a few recognizable shapes, each of which signals a crucial, but different, turning point in the economy. When those shapes appear, it's often time to alter your assumptions about economic growth. To help you learn to predict economic activity by using the yield curve, we've isolated four of these shapes -- normal, steep, inverted and flat (or humped) -- so that we can demonstrate what each shape says about economic growth and stock market performance. Simply scroll
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15.11 - HISTORICAL YIELD CURVE People talk about interest...

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