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10-06-2006, 07:06 AM | #2 |
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The federal reserve, on the other hand, is a system of 12 regional federal reserve banks which loan money to each other and to private banks at a federally-targeted rate (the fed rate/interest rate you see quoted in the news). These loans are for periods of between overnight and 2 months, and must be backed with deposited collateral in the form of T-bills. When the term of the loan expires and repayment plus interest is made the T-bills are returned to the owner.
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10-06-2006, 07:16 AM | #3 |
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10-06-2006, 08:35 AM | #4 |
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The yield curve which is generally talked about is the annualized yield of treasury securities (of which there are 4 types; treasury bills are for the shortest time periods of one month to 6 months, while treasury bonds go for up to 30 years) versus their time to maturity. Generally speaking the yield should go up as the term increases (since longer time periods imply higher risk). If a 1 month t-bill yields an annualized rate of 5% it would be normal to see a 6 month t-bill yield an annualized rate of 6% and a 30 year t-bond yield an annualized rate of 7%, say.
An inverted yield curve would be the other way around (7% for one month, 6% for 6 months and 5% for 30 years) If there is an inverted yield curve it generally implies that the market as a whole is pricing in an anticipated fall in interest rates (if interest rates fall then people who have locked their money in for a longer time period are doing better, so more people today want to lock their money in for longer, so the price of t-bonds (on the secondary market) will rise, decreasing their yield). |
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10-06-2006, 04:15 PM | #5 |
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10-06-2006, 06:02 PM | #6 |
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10-06-2006, 06:09 PM | #7 |
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10-06-2006, 07:49 PM | #9 |
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10-06-2006, 09:21 PM | #10 |
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10-07-2006, 12:33 AM | #11 |
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