Broaden Curve Is a Positive Sign
There are a lot of stock market indicators as well as economic indicators of any country, for investors to watch.
Which indicators are more important?
Obviously, it is difficult for you, to decide, which indicators are more important than others. Perhaps this discussion will be continued always about the significance of both indicators economic and stock market. However, about a few important indicators, there is a great consensus among the most of the market observers. One of them is a Treasury bond’s yield curve.
First let’s define treasury bonds:
Treasury Bonds also known as T-Bonds are issued in value of $1,000 minimum. Initially, these bonds are sold through open auction, with a minimum purchase limit $5 million in non-competitive bid and in competitive bid this purchasing limit is 35% of the total offering. After the auction, these bonds can also be sold in a secondary market.
Treasury bonds yield curve sounds very boring and completed . But it is an important indicator that you must pay attention to it.
Here is why:
Obviously, this fact is known very well that long-term investments are more beneficial than short-term investments. It is exemplified in the bond’s market and in the certificates of the bank.
CD for six-month is usually opened at a down interest rate than the three-year CD.
Obviously, it is fair reason, when you hold an investment for a long period with a fixed rate of interest ; such as a CD or bond, there is the greatest risk because something bad might happen could lower your investment value.
For instance, if you locate a bank CD which pays 5% for a term of three-year, you become unprotected, that interest rate may rise during that long period and you may miss the chance for a higher interest rate.
Often, a penalty is imposed for early withdrawal of bank CDs that would make it imprudent to cash early with an extra return.
However in the bond market, usually you can sell instrument when you want, but in case interest rates have gotten increased since your buying, you must need a buyer for your bond, so in this situation sometime you are compelled to sell your bond at a lower rate to have a buyer.
The United States’ treasury bonds yield curve watch rates for two or ten-year bonds. In case, investors are worried about the future interest rates, they will not buy long-term bonds, because in such bonds risk gets increased.
When the economy of any country is uncertain, a few investors wish for tying up money for longer periods.
If the investor community is truly concerned, the long-term bonds can really set off for less than shorter term bonds that are a U-turn of the usual relationship. So, this U-turn in yield is usually an indication of market trouble.
When the disparity between long and short term bonds broadens it means some investors are ready to tie-up their capital for a longer term.
For more information about treasury bonds yield curve look at CNN.com.