[基础分析] Steepening Yield Curve and Flattening Yield Curve

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2014-5-14 12:33

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The Yield Curve: A Review

The “yield curve” is simply the yield of each bond along the maturity spectrum plotted on a graph, as shown here. The yield curve typically slopes upward, since investors need to be compensated with higher yields for assuming the added risk of investing in longer-term bonds.(Keep in mind, Rising bond yields reflect falling prices, and vice versa). The direction of the yield curve is typically measured by comparing the yields on the two- and 10-year issues, although the difference the federal funds rate and the 10-year note can also be used.

What is a Flattening Yield Curve?

The term “flattening yield curve” sounds very technical, but in fact the concept is very straightforward. When the yield curve flattens, it means that the gap between the yields on short-term bonds and long-term bonds decreases, making the curve appear less steep. The narrowing of the gap indicates that yields on long-term U.S. Treasury bonds are falling faster than yields on short-term Treasury bonds or, occasionally, that short-term bond yields are rising even as longer-term yields are falling.

Example: On January 2 the two-year note is at 2.00% and the 10-year at 3.00%. On February 1, the two-year note yields 2.10% while the 10-year yields 3.05%. The difference went from one percentage point to 0.95 percentage points, leading to a flatter yield curve.

Why Does a Yield Curve Flatten?

A flattening yield curve can indicate that expectations for future inflation are falling. (Since inflation reduces the future value of an investment, investors demand higher long-term rates to make up for the lost value. When inflation is less of a concern, this premium shrinks.) A flattening also can occur in anticipation of slower economic growth. And sometimes, the curve flattens when short-term rates rise on the expectation that the Federal Reserve will raise interest rates.

What is an Inverted Yield Curve?

On the rare occasions when a yield curve flattens to the point that short-term rates are higher than long-term rates, the curve is said to be “inverted.” Typically, an inverted curve has preceded a period of recession. The reason for this is that investors will tolerate low rates now if they believe rates are going to fall even lower later on. Inverted yield curves a very unusual, having occurred on only eight occasions since 1958. More than two-thirds of the time, the economy has slipped into a recession within two years after the onset of an inverted yield curve.

What is a Steepening Yield Curve?

When the yield curve steepens, the gap between the yields on short-term bonds and long-term bonds increases, making the curve appear "steeper". The increase in this gap indicates that yields on long-term bonds are rising faster than yields on short-term bonds or, occasionally, that short-term bond yields are falling even as longer-term yields are rising.

Example: On January 2 the two-year note is at 2.00% and the 10-year at 3.00%. On February 1, the two-year note yields 2.10% while the 10-year yields 3.20%. The difference went from one percentage point to 1.10 percentage points, leading to a steeper yield curve.

Why does a Yield Curve Steepen?

A steepening yield curve typically indicates investor expectations for 1) rising inflation 2) stronger economic growth (since improving growth causes the demand for longer-term capital to increase even as the Fed maintains a low-rate policy).

Can an Investor Take Advantage of the Changing Shape of the Yield Curve?

For most bond investors, it pays to maintain a steady, long-term approach based on their specific objectives rather than technical matters such as the shifting yield curve. However, traders do have a way to play this trend through two exchange-traded products: the iPath US Treasury Flattener ETN (FLAT) and the iPath US Treasury Steepener ETN (STPP). Both are small and have relatively little trading volume, but they nonetheless provide traders with a way to express an opinion regarding the difference between the performance of short- and long-term bonds.

aimei

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More about inverted yield curve：Yield Curve Is Important to Investors in Stock Market（Indicator Is Reflection of Interest Rates）（ZZ）
First, let's look at what it is, then see if it means anything to the average investor.The yield curve describes the relationship between long and short term Treasury interest rates. In normal times, interest rates on short-term debt are lower than those on long-term debt. This makes sense if you think about the risk that long-term lenders take. The longer a debt extends into the future, the more bad things can happen that will affect the lender's return.You can see this phenomenon in action at your bank. A regular savings account pays a few percent interest, while a five-year certificate of deposit pays quite a bit more.In this case, you are lending money to the bank and receiving interest.That's the way the curve is suppose to work - lower interest for short-term debt and higher interest for long-term debt. However, things sometimes get out of alignment. The Fed has been raising short-term interest rates (13 times), but long-term rates have not increased at a corresponding pace. Lower Rates: The result is some long-term rates are lower than short-term interest rates, thus the inverted yield curve.This odd relationship may reflect investor sentiment that they lack confidence in the short-term prospects for the economy. Some economists and market watchers believe an inverted yield curve signals an approaching recession. Does an inverted yield curve signal a recession? Sometimes, but not always.Predicting what the economy is going to do is much like predicting the weather - forecasters can do a decent job over the very near term, but the farther out they go, the higher the error factor becomes. Conclusion: Your best position, regardless of whether there is a recession or not, is a well-balanced, diversified portfolio.

More basics

Investopedia explains 'Yield Curve'

The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve (pictured here) is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short- and long-term rates.

aimei

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每天的yield rate：

http://www.treasury.gov/resource ... iew.aspx?data=yield

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