FundRobot » Bond Funds » what does it mean? " yield curve spread between 10 year T bond and federal rate is a leading economic indicato?

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Default what mean " yield curve spread between 10 year t bond and federal rate is a leading economic indicato

" yield curve spread between 10 year T bond and federal rate is a leading economic indicator"
i dont get it

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Default what mean " yield curve spread between 10 year t bond and federal rate is a leading economic indicato

The yield curve is the amount of interest paid on a financial instrument. Usually, it refers to the changes (the higher or lower rate) paid based on the length of the financial instrument. For example, a 6-month bond might pay 2%, a 1-year bond might pay 3%, a 5-year bond might pay 4%, and a 10-year bond might pay 5%. If you graphed this, you'd see a rising line; that's typically what "yield curve" refers to.

In your case, though, you're comparing two different things--the Federal funds rate and a 10-year T-bond. Still, you can plot the difference. That's the yield curve.

A leading economic indicator is a prediction of where the economy is expected to go. Economic indicators can be either good or bad. Rising unemployment or rising unemployment claims are indicators that the economy is likely to worsen. rising employment or lowered inventories are indicators that the economy is likely to strengthen.

In the case of an interest rate curve--to return to your specific question--rising expected interest rates are a good sign. It indicates that the financial markets expect more people to want to borrow in the future than they're borrowing right now. And usually more people (or businesses) borrowing means people are spending more, buying more, have more confidence in the economy, and so on.

Hope that helps.
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