Yield curve or term structure

Reverse yield curve

Definition, phenomenon and truth are upside down? Are there any other upside-down phenomena?

Yield curve or term structure

The inversion of yield curve usually means that the long-term interest rate is lower than the short-term interest rate in the term structure of interest rate. Liquidity preference theory believes that in a normal market, because people prefer short-term liquidity, the short-term interest rate will be lower than the long-term interest rate.

explain

Generally speaking, the interest rate of bank deposits is lower in the short term than in the long term. Suppose you usually see that the interest rate of bank deposits is 2.7% for three years and 3.0% for five years. But one day you see that the five-year period is 2.7% and the three-year period is 2.8%. At this time, the long-term interest rate is lower than the short-term interest rate, which means that the interest rate is upside down.

* The historical interest rate is upside down.

In the financial crisis in 2008, the long-term interest rate level was lower than the short-term interest rate, which persisted, and was also called "the puzzle of Greenspan's long-term interest rate". One possible explanation is that people expect the economy to be weak for a long time and the central bank will maintain a low interest rate policy, so the long-term interest rate is low; In the short and medium-term crisis situation, the shortage of funds and liquidity leads to the rise of short and medium-term interest rates and the inversion of interest rates.

Example of current situation:

Recently, the 3-year and 5-year deposit products of state-owned banks such as China Construction Bank, Bank of China and Industrial and Commercial Bank of China have seen the phenomenon of "upside down" interest rates.

The highest interest rate for 3-year deposits is 3. 15%, while the interest rate for 5-year deposits is only 2.75%.

Why is there an interest rate inversion?

There is a view in the market that interest rates are falling; It is said that the domestic economy is under downward pressure due to the epidemic; Some people say that banks should control costs; Some people say that banks are not short of money. ...

In fact, they are all right, but what Binbin wants to say is that in addition to the benchmark interest rate announced by the central bank, there are also the bank's own positioning (determining the listing interest rate), product design (for example, the higher the initial purchase amount, the higher the interest rate, and the higher the purchase ceiling amount, the lower the interest rate), and the bank's promotion or profit-making activities for target customers.

Don't be misled by eye-catching headlines, and not all banks have interest rates upside down. You can try telling the bank that you want to deposit 5 million yuan regularly (even if you don't have it, you should show some momentum). Do you think the bank will give you a high interest rate for three or five years?

Don't think that only the deposit interest rate will be upside down!

Give you a few chestnuts and learn to draw inferences ~

In the female stock market: for example, "playing new shares", the normal primary market subscription for new shares, secondary market listing, the first day of the price will generally be several times higher. But is there a price drop in the listing? There must be! This is often said to be "broken", and it is also the interest rate inversion in the secondary market.

The same is true of bonds and central bank bills.

Female loan interest rate is upside down: under normal circumstances, the loan interest rate should be higher than the deposit interest rate, right? If the central bank lowers the lower limit of the floating range of the loan interest rate in order to stimulate the economy (assuming the property market), it is possible that the loan interest rate is lower than the deposit interest rate. For example, for loans with a term of more than five years, the discounted interest rate is 4.9%, but the interest rate for five-year deposits in the same period is 5.0%.

The interest rate between China and the United States is upside down: generally speaking, it is the interest rate of ten-year government bonds. Generally speaking, interest rates in developed countries are lower than those in developing countries, but in April this year, the debt ratio of the United States was 2.76%, while that of China was 2.75%.