Terms

Interest Rate

Interest Rate

Nick Name
Yield

The interest rate is how much a person/entity pays to borrower money from a lender.

Asset Classes

Fixed Income

People

Jim Grant

Mentioned by the Following

Asset Classes

Fixed Income

Entities

CME Group
Chicago Board Options Exchange
Compound
Federal Open Market Committee
HBK Capital Management
Intermarket Strategy Ltd
Kamakura Corporation
Louise Yamada Technical Research Advisors
Macro Intelligence 2 Partners
Pantheon Macroeconomics
Quill Intelligence
TG Macro LLC

Entity Types

Investment Holding Company

Events

US Economic Periods

Event Types

Default

Industries

Banking

People

Arthur Hyde
Barry Habib
Chamath Palihapitiya
Chris Whalen
Christophe Ollari
Dan Oliver Jr.
Dan Rasmussen
Dario Villani
David Kotok
Eric Peters
Evan Lorenz
Francesca Taylor
Frank Reilly
Frederik Ducrozet
Greg Diamond
Ira Walker
Ivelin Zhelev
Jim Grant
John Butler
John Floyd
John Taylor
Kay Van-Petersen
Kevin Muir
Lacy Hunt
Magdalena Polan
Marcin Liberadzki
Mary Aden
Pamela Aden
Patrick Perret-Green
Paul Volker
Peter Kendall
Ramon DeGennaro
Richard Sylla
Simon Lack
Simon White
Steve Ricchiuto
Steven Hochberg
Tariq Dennison
Walter Bagehot

Positions

A History of Interest Rates
Advanced Bond Portfolio Management
Advanced Financial Risk Management
Advances in Fixed Income Valuation Modeling and Risk Management
Advances in the Valuation and Management of Mortgage-Backed Securities
Aftermath
Alan Ellman's Option Greeks Analyzed for Retail Investors
An Introduction to Bond Markets
Bond Markets, Analysis, and Strategies
Bond Portfolio Management
Bond and Money Markets
Brazilian Derivatives and Securities
Capital Markets
Escape from the Central Bank Trap
Eurodollar Futures and Options
FRED
Financial Risk Analytics
Fixed Income Analysis
Fixed Income Mathematics
Fixed Income Securities
Floating-Rate Securities
Floored!
Foundations Of Financial Markets and Institutions
Foundations of Global Financial Markets and Institutions
Fundamentals of Investments
Gary Shilling's Insight
Global Forecast Service
Global Market Perspective
Handbook of Finance
How to Forecast Interest Rates
How to Raise Your Credit Score
Human Action
Inflation Targeting
Inside The Yield Book
Institutional Investment Management
Introduction to Structured Finance
Investing from the Top Down
Investing in Mortgage-Backed and Asset-Backed Securities
Investing in Municipal Bonds
Investment Management for Insurers
Marc to Market
Market Evolution
Measuring and Controlling Interest Rate and Credit Risk
Mish Talk
One Up On Wall Street
Perspectives on Interest Rate Risk Management for Money Managers and Traders
Project Financing
Stigum's Money Market
That Doesn’t Work Anymore
The Aden Forecast
The Coming Bond Market Collapse
The Complete Guide to Investing in Derivatives
The Complete Guide to Investing in Short Term Trading
The Curse of Cash
The Daily Dirtnap
The Global Money Markets
The Golden Revolution, Revisited
The Handbook of Asset/Liability Management
The Handbook of European Fixed Income Securities
The Macro Show
The Mathematics of Financial Modeling and Investment Management
The Menace of Fiscal QE
The Message of the Markets
The Origins of Value
The Snowball
The Ten Trillion Dollar Gamble
The Zero Interest Trap
Trader Vic on Commodities
Trading Options Greeks
Treasury Securities and Derivatives
Valuation of Interest Rate Swaps and Swaptions
Why Bother With Bonds
eCONcomics

Publication Types

Debt Restructuring
Global Macro Strategy

Strategies

Black Scholes Model
Derivative
Gilt
Inflation
Monetary Policy
Structured Note
Yield

Tilts

Bulls can't stand low rates


Why are Interest Rates Important?
  • They are the traffic signals of investment
  • They measure time preference
  • They calibrate risk
  • They set investment hurdle rates
  • They have a huge impact on:
  • They can fuel or crate prices of other assets like stocks and real esate
    • Low rates tend to increase the price of other assess as they become cheaper to finance and reduce discount rates
    • High rates tend to decrease the price of other assets as they become expensive to finance and increase discount rates 
Interest Rate Forecasting
  • Forecasting interest rates is extremely difficult - there are countless factors
  • Some consider it to be impossible
  • Central banks often try to forecast interest rates, but are proven incorrect over time

What Determines the Interest Rates

  • Short and long term interest rates are driven by different forces
    • Long-term rates are usually higher than short-term rates (more uncertainty)
  • Rates can be driven by Central bank Actions
    • Short term rate adjustments
    • Quantitative Easing (asset purchases) to drive long-term rates
    • Forward Guidance (Telling the markets what it plans to do)
  • Interest rates tend to move in long-term cycles:
    • 1900 - 1920 rising interest rates & inflation
    • 1920 - 1946 falling rates 
    • 1946 - 1981 rising rates
    • 1982 - 2016???? (end dates still tbd) falling rates
    • Interest Rate Cycles are Natural:  People first consume more than they can produce (rates go up), then later they have to pay it off (rates go down)

What Drives Short-Term Interest Rates


What Drives Long-Term Interest Rates


US Historical Interest Rate Levels (Short Term Fed Rate)

  • Rates generally rose in the 1960s and 1970s
  • Rates mostly above 2.5% from 1960s to 2010
  • Rates mostly above 5% in 1970s and 1980s
  • Rates jumped to 10% - 19%+ in late 1970s and early 1980s
  • Rates started to decline around 1980 into 2016 (end still TBD as of 2018)
  • Rates at historical lows from 2010 onwards (after great recession and FED QE Programs)


  • Historically 10 year yields  have traded inline with GDP growth (relationship stopped after 2008 crisis & QE Interventions)