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May 13, 2005
Interest rates are not yields, Fri., May 13, 2005, 12:24 PM
Are we in a falling yield market? Yes.
Are we in a rising interest rate market? Yes.
That's because interest rates are not yields.
An interest yield represents the financial return on a fixed income (debt) security, whereas an interest rate represents the cost of money borrowed at your bank, for example.
When the cost of money from the central bank in your country (e.g., Federal Reserve Bank), borrowed by your bank, rises for example, as it is today, your bank passes along those costs to you. If they didn't, your bank would go out of business (i.e., bankrupt).
So for now we have rising rates and falling yields.
It happens; not often, but it happens.
Posted by Posted by Bill Cara on May 13, 2005 12:25:14 PM | Category: Bonds
