Broomer's Blog

From the monthly archives: August 2019

We are pleased to present below all posts archived in 'August 2019'. If you still can't find what you are looking for, try using the search box.

When the Curves go Topsy Turvey

When I started out in this industry (and frankly for many years after then), I used to get very confused about yield curves, particularly when they get inverted. Thankfully, I now realise that it's quite simple.

The yield curve graphically describes what the interest rate is at various time points. So starting with bonds very close to maturity such as the 3 month gilt (or treasury bill), we can find an effective rate for a short term investment. As we extend the maturity rate, we can find the rates for 1yr, 2yr, 3yr etc bonds. Typically, curves go out as far as 30 years.

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Redefining the term ‘Investment’

If I offered to borrow money from you with no interest payments and promised to pay you back less than I borrowed in 10 years time, I guess that you would tell me where to go. I suppose you might be prepared to make such a loan to a family member or possibly a very close friend, but you certainly wouldn't consider it an investment.

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