Bonds & Yield Curves Part 3
Yield Curves, Shape, & Roll Yield
Welcome back to part 3 of everything you need to know about bonds and yield curves. The first 2 parts were very bond heavy explaining how to calculate the prices, why changes in rates impact prices, and what the eff duration is and what it means. (Note - its a pun since we talked a lot about effective duration or eff dur…get it)
Now we have enough of a background to get into some yield curve specifics. Which is good because as bad as most people are with understanding bonds, somehow when it comes to yield curves the statements get even worse.
This post we are going to get into:
What is a yield curve actually?
How to understand the curves
Some basic yield curve traits and the different shapes
And finally dispel the fallacy that “when the FED drops rates you can refi a mortgage for cheap” (23-year old “RE Gooroo” Braydens & Harpers down tremendous)
There is a lot to cover, and this is likely going to leak over to a 4th part in the series that further explains some yield curve movements. So short intro this week. If you haven’t read it, get caught up with the prior posts: