Interest rates and yield curve
Hey everyone,
If the Fed keeps saying they are raising rates. Why does the yield curve keep sliding downwards? Could someone please explain this to me?
Many thanks, am preparing for my CFA!
That chart is the 2Y10Y spread. Shows the difference between the 10Y and 2Y US Treasury yields; it's evidence of curve flattening, not parallel shifts.
As to why yields move, lots of reasons. The usual (safe, pun intended) guess is a flight to quality situation. The Fed sets a target for the Fed Funds Rate (not a maturity of US debt), and tries to use open market operations to push Fed Funds to their target.
The Fed sets the fed funds rate, which is a short-term rate (overnight lending rate that member banks charge each other for borrowing fed reserves). It thus drives other short-term rates but not the long-end of the yield curve. Of course, initially, when the Fed makes a rate announcement, you will see the entire yield curve move in response, but that is a short-term "gut" reaction rather than due to fundamentals. The 10-year yield will decline due to flight to safety, pessimism over the long-term state of the U.S. economy, etc.
There’s too much money out there. It’s not a flight to quality, otherwise you would see IG credit spreads widen as well. Everything is just tight everywhere all the time and I wanna kms.
Agreed on that -- I should have specified the "usual" is totally wrong in this situation. Glad I'm no longer on the desk; I would've hated myself in this environment.
Internship Questions - Interested in rates, currencies, and better understand of the yield curve (Originally Posted: 01/21/2013)
If I am interested in rates, currencies, and better understanding of the yield curve, where should I look into interning? I am a sophomore at a non-target who did PWM at a BB last summer. I've already applied to banks in general, but what else can I do? I probably won't get any of the BB's opportunities. What should i look into?
A little bit outside the normal box might be a structured products group as a intern
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