Suggestion by Tim Plaehn on 2008-01-14 17:40:03
I think it would be easier to understand yield curve by showing a couple of charts from various points in recent history, showing positive, flat and inverted curves. The yield curve is described pretty well here, but seeing it would help understanding. The one charts in this article would be more understandable with a stronger knowledge of the yield curve. Another area that I think should be covered is the effect that the Federal Reserve policies have on the different maturities on the curve. I.e. the Fed has tremendous influence on short term rates, while longer term rates are more market driven. Finally, I think the practice of borrowing short and lending long is rarely practiced. If banks can pay 1% on savings and get 18% on credit cards, they do not have to lend long. For longer term lending products, they are most often repackaged into securities and resold, after fees are generated of course.
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