Money & Finance · intro
What moves on the Term Structure of Interest Rates diagram
Policy rate hikes lift the short end directly; long yields rise by the amount markets expect hikes to persist, so the whole curve shifts up.
The short end of the curve is anchored by the policy rate.
InflationinflationA sustained rise in the overall price level, eroding money's purchasing power. runs hot and the central bank begins hiking meeting after meeting.
The anchor lifts, and the whole curve rises from the short end.
Long yields rise too if markets believe rates will stay high. How MUCH they rise tells you how credible the fight against inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. is.
Examiners ask this as: hiking cycle, rate rises, tightening, inflation fight, cash rate increases.
Other scenarios on Term Structure of Interest Rates