Re:The U.S. Yield Curve Has Inverted
by zaroth on Monday December 03, 2018 @08:23PM
(#18594987)
2.32% / 4.
And hopefully that answers your second question as well.
The rate is annualized, meaning the profit if you held the bond for 1 year.
So a 3 year bond at 2.32% pays a 2.32% annual interest rate. Interest payments are made twice a year. A 5 year bond at 2.32% pays the same rate of return — 2.32% interest per year, but in that case guaranteed to continue paying at the same rate for 5 years instead of 3.
The rate is the annual rate. The term is for how long interest payments are made and how long until the bond “matures” — when the face value is paid back.
If people think rates are going to go down in the future, then they will accept a slightly lower rate if it is locked in for a longer term, which is the idea behind the “inversion”.
And hopefully that answers your second question as well.
The rate is annualized, meaning the profit if you held the bond for 1 year.
So a 3 year bond at 2.32% pays a 2.32% annual interest rate. Interest payments are made twice a year. A 5 year bond at 2.32% pays the same rate of return — 2.32% interest per year, but in that case guaranteed to continue paying at the same rate for 5 years instead of 3.
The rate is the annual rate. The term is for how long interest payments are made and how long until the bond “matures” — when the face value is paid back.
If people think rates are going to go down in the future, then they will accept a slightly lower rate if it is locked in for a longer term, which is the idea behind the “inversion”.