What is the term interest rate structure?

More known as the yield curve, the term structure of interest rates is the relationship between time or term to maturity and revenues for maturity of a number of securities with fixed income. The term structure of interest rates is a reflection of the outlook of the market participants on economic activities and the level of inflation, as well as the conditions of supply and demand in the markets with securities. Revenue to maturity of the latest problems of the Ministry of Finance in the US, from three months to thirty years to thirty years after maturity, are usually used to produce benchmark structure of interest rates. This yield curve or its variation known as the Revenue Redemption curve is used for the prices of debt securities of all types by analyzing discounted cash flows. The term structure of interest rates also serves as a scale for the prices and evaluation of other debt securities and interest rates such as corporate bonds, mortgages supported by securities and interbank lendisazby NG.

Interpolation techniques are used to create a smooth yield curve by filling the gaps between discrete points. The shape of the term interest rate structure is constantly changing with changes in demand and supply for drying on securities and derivatives in the US. In general, however, some form of what is called the "normal" yield curve. The normal yield curve is ascending, ie interest rates are higher, the longer the term to maturity. This reflects "normal" expectations by investors for higher revenues due to greater uncertainty and risk assumed as conditions for prolongation of maturity.

Sometimes the term structure of interest rates can occupy a flat aspect, known as a flat yield curve. This may indicate the uncertainty of the investor in terms of the future exchange rate and the direction of interest rates or the period of transition driven by the change of expectations. The yield of the yield curve usually occurs when short -term interest ratesThey grow while long -term rates fall. If the yield curve is flat, investors can optimize a compromise between the risk and return of the purchase of fixed income securities with the least risk or the highest loan quality.

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Inverted yield curve is a rare occurrence in which the revenues of short -term fixed revenues of US state securities are higher than their long -term counterparts. The inverted yield curve suggests that the market expects interest rates to fall further to future time. Also characteristic of such an environment is the growing rate of short -term US state securities, usually due to significant tightening of monetary policy by the federal reserve system. Inverted yield curves are also interpreted as a sign of imminent economic slowing or contraction.