Our Strength – Index – Prasan Vidya Bala Mandir

The determination of the structure of yields is nowadays mostly expressed by the theoretical expectation. Often, a particularly long-term interest rate is used as an average value in order to be able to analyse interest rates with a shorter duration. However, the yield curve is actively influenced by the expectations of market participants. This allows them to decide whether to make a fixed or variable investment. When interpreting yield curves, they can take different forms. These include

- the falling yield curve

- the rising yield curve

- the constant yield curve

The rising yield curve indicates that all market participants expect the interest rates of long-duration investments to rise compared to those of short duration. This means that a long-term capital investment is little frequented. For market participants, this means making a short-term investment, which has an increased degree of flexibility. The increased demand for short-term investments results in an increase in the price, which also results in a decrease in the yield. In the credit sector, this development leads to increased borrowing of liquidity. Due to these market-relevant events, the yield curve can be seen as steep, which indicates that a demonetisation may occur in the future. These events result in an increase in the unadjusted interest rate.

If the yield curve is linear, the largest proportion of all market participants believe that future expected interest rates can be either above or below the level currently prevailing in the financial market. This means that the average interest rate is expected to be at the level of the current interest rate in Exness fx Asia.

The interest structure curve running the other way round stands for the expected falling interest rates on the financial market in the future. This means that market participants aim to achieve a long-term capital investment. As a direct effect of this process, the price of long-term bonds rises, which, however, causes yields to fall. In the case of potential borrowing, this means a desire for a variable interest rate, as this can reduce the overall costs of the individuals concerned. Due to the higher demand for loans with short maturities, interest rates are rising in the short-term framework. The mood in the financial market is thus tense.

The theoretical spot rate and its consideration

Besides showing an almost exact structure of the interest rate, the expectation of an interest rate structure is also relevant. This makes it possible to estimate the risk of an investment. By estimating this risk, it is possible to make a decision about investing in an asset. By processing the structure of an interest rate, it is therefore possible to take financial measures that aim to generate a return.