Friday, August 28, 2009

the yield curve and forecasting interest rate

this curve can be an extremely useful tool for investors.if the expectations hypothesis is correct, the yield curve gives the investor a clue concerning the future course of interest rates. if the curve has an upward slope the investor may be well advised to look for opportunities to move away from bonds and other long-term securities into investments whose market price is less sensitive to interest-rate changes. A downward-sloping yield curve, on the other hand, suggests the likelihood of near-term declines in interest rates and a rally in bond prices if the market‘s forecast of lower rates turns out to be true.

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