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Knowledge Series : How To Interpret The Yield Curve In The Debt Market
As per the recent data on RBI website, the yields on Govt bonds in the debt market are trending as follows :
7.26% GS 2033 : 6.9794%
7.26% GS 2032 : 7.0207%
7.06 % GS 2028 : 6.9058%
7.38% GS 2027 : 6.9046%
6.89% GS 2025 : 6.7901%
6.69% GS 2024 : 6.7819%
91 Day Tr Bills : 6.7839%
182 Day T-Bills : 6.8963%
364 Day T-Bills : 6.8914%
The above trends in the G Sec market show that there is a little difference in the yields of bonds across all maturities. A flat curve happens when bonds of all maturities have similar yields. A flattening of the yield curve usually occurs when there is a transition between the normal yield curve and the inverted yield curve. A flat yield curve is typically an indication that investors and traders are worried about the macroeconomic outlook. One reason the yield curve may flatten is market participants may be expecting inflation to decrease or the central bank to raise the policy interest rate in the near term.
The yield curve represents the yield or interest rates of bonds of similar quality across various maturities. Investors often use the yield curve to track where the economy is headed & make predictions about where to invest their money.
🟦 Normal Yield Curve
A normal yielde curve shows yields of short-term bonds (2 to 5 years) through long-term bonds (between 10 to 30 years) & shows an upward slope showing a higher yield over time, signaling confidence in government or corporate bonds are strong investments likely to pay off over time.
🟦 Flat Yield Curve
A flat yield curve is when all bond rates are similar across companies and governments alike & show no difference, suggesting longer-term bonds may not yield more over time. When there is a flat curve, investors put their money in reliable areas like consumer staples as opposed to luxury goods companies.
🟦 Inverted Yield Curve
The yield curve inversion occurs when the yield of longer-term bonds dips below that of medium-term bonds or the yield of medium-term bonds falls l below that of short-term bonds. An inverted yield curve shows that investors aren’t sure of the long-term profitability of a company’s or government’s ability to pay a debt in a certain fixed time, may be demanding more money for short-term bonds, or are willing to accept lower rates for long-term bonds, out of concern for what’s coming in the future.
🟦 Steep Yield Curve
A steep yield curve indicates that long-term yields are rising at a faster rate than short-term yields. Both the normal & steep curves are based on the same general market conditions. The only difference is that a steeper curve reflects a larger difference between short-term & long-term return expectations.
🟦 Humped Yield Curve
A humped yield curve occurs when medium-term yields are greater than both short-term yields and long-term yields. A humped curve is rare and typically indicates a slowing of economic growth.
Thanks for reading… (Credit: Goving Gurnani, Former AGM RBI)
As per the recent data on RBI website, the yields on Govt bonds in the debt market are trending as follows :
7.26% GS 2033 : 6.9794%
7.26% GS 2032 : 7.0207%
7.06 % GS 2028 : 6.9058%
7.38% GS 2027 : 6.9046%
6.89% GS 2025 : 6.7901%
6.69% GS 2024 : 6.7819%
91 Day Tr Bills : 6.7839%
182 Day T-Bills : 6.8963%
364 Day T-Bills : 6.8914%
The above trends in the G Sec market show that there is a little difference in the yields of bonds across all maturities. A flat curve happens when bonds of all maturities have similar yields. A flattening of the yield curve usually occurs when there is a transition between the normal yield curve and the inverted yield curve. A flat yield curve is typically an indication that investors and traders are worried about the macroeconomic outlook. One reason the yield curve may flatten is market participants may be expecting inflation to decrease or the central bank to raise the policy interest rate in the near term.
The yield curve represents the yield or interest rates of bonds of similar quality across various maturities. Investors often use the yield curve to track where the economy is headed & make predictions about where to invest their money.
🟦 Normal Yield Curve
A normal yielde curve shows yields of short-term bonds (2 to 5 years) through long-term bonds (between 10 to 30 years) & shows an upward slope showing a higher yield over time, signaling confidence in government or corporate bonds are strong investments likely to pay off over time.
🟦 Flat Yield Curve
A flat yield curve is when all bond rates are similar across companies and governments alike & show no difference, suggesting longer-term bonds may not yield more over time. When there is a flat curve, investors put their money in reliable areas like consumer staples as opposed to luxury goods companies.
🟦 Inverted Yield Curve
The yield curve inversion occurs when the yield of longer-term bonds dips below that of medium-term bonds or the yield of medium-term bonds falls l below that of short-term bonds. An inverted yield curve shows that investors aren’t sure of the long-term profitability of a company’s or government’s ability to pay a debt in a certain fixed time, may be demanding more money for short-term bonds, or are willing to accept lower rates for long-term bonds, out of concern for what’s coming in the future.
🟦 Steep Yield Curve
A steep yield curve indicates that long-term yields are rising at a faster rate than short-term yields. Both the normal & steep curves are based on the same general market conditions. The only difference is that a steeper curve reflects a larger difference between short-term & long-term return expectations.
🟦 Humped Yield Curve
A humped yield curve occurs when medium-term yields are greater than both short-term yields and long-term yields. A humped curve is rare and typically indicates a slowing of economic growth.
Thanks for reading… (Credit: Goving Gurnani, Former AGM RBI)
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