can someone explain bond yield curves to me?

[Pliablemoose]

Ideally using sock puppets, videos abd charts?

Or just using hookers and their fees as an example?

<---dumb as a post

 

[FelixDeCat]

Back in the day, before we were in a prepetual state of politically motived interest rates (that even fed a huge housing bubble), the FED would actually raise rates a full 1 percent or more to reign in growth as necessary. Hard to believe, I know.

In a perfect environment short term bonds would pay less than long term bonds because investors demand more for holding them longer. So people would predict recessions when the opposite happened (short term rates were HIGHER than than long term rates).

Now we are in the midst of a bond bubble and its best to stay away from them if you can (unless you hold them to maturity).

 

[Kntx]

The yield curve is a graph with yield on the y-axis and maturity date on the x-axis. The graph curves upward as the maturity date increases. This is because investors require greater returns for debt with more time to maturity. This is because the longer you hold the debt the more interest rate risk you bear. Interest rate risk is more of a convern when rates are low as there is only one direction for them to go (bond prices move opposite interest rates).

 

[Barfo]

http://www.vuvuzela-time.co.uk//forums.anandtech.com/showthread.php?t=2094927

 

[FelixDeCat]

http://www.vuvuzela-time.co.uk//forums.anandtech.com/showthread.php?t=2094927

I agree Barfo, shorting a highly leveraged bond fund sounds somewhat appealing. But right now is not the time.