As I posted yesterday on the Inverted Yield curve, as the future yield is a function of the expected spot rate and the term premium, either of imageswhich could go up or down separately or together. The talented RBI researchers should come out with their interpretation of the current yield trends of gilts in the forthcoming Annual Report of the Bank. So let’s try to build analogy on Term structure moving forward.
The “term structure” of interest rates refers to the relationship between bonds of different terms. When interest rates of bonds are plotted against their terms, this is called the “yield curve”. Economists and investors believe that the shape of the yield curve reflects the market’s future expectation for interest rates and the conditions for monetary policyContinue reading