Recently sharing and discussing on the economic growth and the debt market yield spread impact recalled me some work I did in the past and its worth sharing,
The abstract was based on the evidence that yield spread can serve as a leading indicator of economic activity.It’s important to understand few basic concepts before moving forward:
YIELD SPREAD: The difference between yield of long-term debt and short-term debt instrument is known as yield spread. Higher the difference between instruments greater will be the yield spread.
For example, if the 05-year Treasury bond is at 3% and the 20-year Treasury bond is at 4%, the yield spread between the two debt instruments is 1% (4% – 3%). Continue reading “Economic Growth and Yield Spreads on Debt paper – Back to School”
Over the past few weeks, the economy of India has been in focus because of various factors such as decline in INR, slowdown in industrial production, etc. We keep reading a lot of articles that suggest that the policies of current government are responsible for this state of affairs.
A.Seshan in Businessline points to this known but seldom reported trend ongoing in India – inverted yield curve in G-sec markets:
A typical yield curve should be upward sloping indicating that the higher returns/rates/yields should be provided for taking higher risks which are generally over the long term. Similarly, lower returns/rates/yields should be for lower risks which are generally short term. In short, longer the time frame, higher should be the rate/yield that you should earn. Continue reading “The Inverted Yield Curve – India”