Question

We will take another Web Field Trip this week for your Assignment. Visit the following site: bloomberg   .com /markets/rates

You will find an amazing amount of information about GLOBAL interest rates. It will open to the United States. NOTE: For this link to operate properly, you may need to open it outside the classroom page, by opening a new browser window. Copy/paste the above address to a new page and go there outside of class.

Explore, learn and really study the material contained on this page. This was built as a discussion thread, so you can do your assignment and still see what other students are finding and talk about it as a group. Share your findings. Discuss the content.

You will see for example, an item called a "Yield Curve." Here is the one from the day this page was created for the U. S. Treasury Rates. The north and south axis (the X axis) measure interest rates. The east and west (the Y axis) measures the term (time) of the bond. You are seeing here that a bond with a term of 3 months pays much lower interest than a bond with a life of 30 YEARS. That make sense, although it is not always true, believe it or not. Do some research on the internet regarding an "inverted yield curve." See what you can find and discuss it here.

Do not make this overly complex. We are studying bonds this week; they pay INTEREST. Through this online field trip you will get exposure to interest rates around the world. Take the journey, do some independent research and post a report here telling us what you learned. Feel free to also share your personal experiences with INTEREST rates. They affect you too -- in your credit cards, car loans, home mortgages, and what you earn on your savings.

The topic is Interest RATES; let's all find out all we can about them and share those findings here.

or you can "Google it" and explore on your own. Just remember: I want YOUR words. Tell us all about interest rates and discuss the topic as a class. During your explorations, investigate the role of the Federal Reserve regarding interest rates, too.

Answer 1

Interest rates are all about time value of money and that is what is paid by bonds or any fixed income instruments by the borrower to the lender.

Since there is fixed payment which is due to the lender by the borrower, the bonds are considered less risky than comparable equity instruments. The treasury yield on the 10 year bond is considered to be the risk free rate and all other interest rates are benchmarked to the same. The Federal Reserve plays an important role as it lowers or raises the rate at which it lends to banks to affect the money supply in the economy and influence the interest rates. The higher interest rates can tame inflation but can affect adversely the economic activity. While on the other hand lower interest rates stimulates economic activity but can lead to higher inflation.