Yield curve: interest rates / government bond yield

<body><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td> <font face="garamond, times new roman, times" mstheme> <p> Yield Curve </p> <p> </p> </font mstheme> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td valign="top" width="1%"><font face="garamond, times new roman, times" mstheme> <p> </p> </font mstheme></td><td valign="top" width="24"></td><td valign="top"> <p>This page uses frames, but your browser doesn't support them. </p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Bonds: Yield Curve</font></strong></p> <p><strong><em><font face="Arial Narrow" size="2" color="#00FF00">Buy when the coloured lines trend higher,</font><font face="Arial Narrow" size="2" color="#C0C0C0"> </font><font face="Arial Narrow" size="2" color="#FF0000">sell when they trend lower</font></em></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>This tool uses the yield curve to look at the relationship between consensus expectations and bond prices. It is designed not only to show the current position but also to provide a Best Guess as to the future trend. For comparability, es have been rebased to set year-end 1994 at 100. government bonds index</strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">In each chart the bond price index is shown in as </font><font face="Arial Narrow" size="2" color="#FFFFFF">the thick white line</font><font face="Arial Narrow" size="2" color="#C0C0C0"> on the right hand axis. The main explanatory variable, the yield curve i.e. ratio of long-term bond yield to short-term interest rates uses the left hand axis and is shown as </font><font face="Arial Narrow" size="2" color="#FFFF00">the thin yellow line.</font><font face="Arial Narrow" size="2" color="#C0C0C0"> A Best Guess as to the future development of the ratio is also shown on the left hand axis, as</font><font face="Arial Narrow" size="2" color="#FF0000"> the thin orange line.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Best Guesses suggest what would happen to the yield curve based on forecasts for bond yields and interest rates. The base level is the average for the last completed calendar year. Forecasts are based on consensus estimates. </font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Generally the ratio of long-term bond yield to short-term interest rates is low when interest rates are expected to fall and bond prices expected to rise, and vice versa. Thus, an upturn in the ratio indicates increasing optimism and a downturn indicates increasing pessimism. As the ratio tends to fluctuate within a well-defined range, upturns from a low are cyclical buying opportunities and downturns from a peak are selling opportunities.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Please note that the value axis for this ratio,on the left hand scale, has been inverted, so that movements in the ratio point in the same direction as any changes in bond prices that they may indicate.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Owing to the conversion of legacy currencies into Euros, analysis is provided on a common bond market denominated in Euros, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.</font></strong></p> <hr color="#FF0000"> <p align="center"><font size="2">[ <a href="global_asset_allocation_sitemap.htm" target="_top">Site Map</a> ] [ <a href="index.htm" target="_top">Home</a> ]</font><font size="2" face="Arial"><br> </font><font size="2">[ <a href="Chart_Library.htm" target="_top">Chart Library</a> ] [ <a href="ChartLibrary_government_bond.htm" target="_top">Bond Charts</a> ]</font> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td><font face="garamond, times new roman, times" mstheme> <p align="left"><font face="Arial Narrow" size="1" color="#C0C0C0">Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Securities Authority. An Independent Financial Adviser. Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: January 05, 2001</font><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>.</strong></font></p> </font mstheme></td></tr></table></body>