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Rate paid by fixed-rate payer on an interest rate swap for 1, 5, 7, 10 and 30 year maturity

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170151875_136c7976ee_sBy Federal Reserve Board on Jul 31, 2007
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Federal Reserve Board (http://www.federalreserve.g...)
Comparing fluctuation of daily rates —Federal Reserve Board

Comments (2)

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huned
huned says

this is interesting. why do the rates converge in 2001 and 2007, but diverge in 2003? what does this mean?

posted about 1 year ago
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Gerad Suyderhoud
Gerad Suyderhoud says

The difference between the short-term and long-term rates is called the yield curve. When short-term rates are the same as long-term rates, the yield curve is called "flat," when short-term rates are higher than long-term rates the yield curve is called "inverted." The yield curve is inverted now.

An inverted yield curve means that it's cheaper to borrow for a long period than a short period. This means that people expect interest rates to go down in the future. In 2001, after the .com crash, the Federal Reserve cut rates to historic lows, rates have gradually risen over the last few years.

People are probably expecting cuts again given the collapse of the sub-prime mortgage bubble. Hence the flat yield curve.

posted about 1 year ago

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