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For whatever reason, if people are optimistic about the market, the yields are higher long term versus short. (You need to get paid more interest to hold a 10
by mathattack 8y ago
For whatever reason, if people are optimistic about the market, the yields are higher long term versus short. (You need to get paid more interest to hold a 10 year bond than 2 years because you assume the rates go up)
The general reason people think rates will go down in the future is if a recession is coming, and the govt will lower them. In this case the rates may high for 2 years, but lower long term. (The 10 year rate is just a weighted average of interim rates)
- taysic 8y agoWhy would rates go up in an economy that is getting better? Is it only because the Fed would increase rates in response to the improvement? In a free market, I imagine they would go down because people would trust the government's ability to pay back their bills and thus bonds would be more in demand?
- mathattack 8y agoIt’s not credit risk of the govt. It’s the govt raising rates to slow down inflation. (In a downturn, prices go down, so rates can be lowered without an inflation risk)
- deleted 8y ago[deleted]