#54 Yield Curve Macro Indicator: Crucial If you want to understand intermarket dynamics, this is where it starts.
Yield Curve Critical Macro Indicator: Yields are the backbone—they link every asset class. Their movements set off ripple effects across the entire market.
Yield Curve: Where Does It Come From?
From the bond market.
The price of a bond—whether it’s 2, 10, or 30 years—reflects supply and demand.
And within that price, an interest rate is embedded.
A bond is simply the present value of future cash flows, discounted at “i,” the rate set by the market.
Essential Formula – Zero-Coupon Bond
Price of the bond =Nominal Value/(1+i)n
Where:
We use a zero-coupon bond to keep things simple: all the variables—price, maturity, and nominal value—are public.
The rate is embedded in the price and can be calculated directly.
Bond prices move every day, and that means rates move too.
Rates(yields) change with supply and demand, which changes the present value of future cash flows—and therefore the bond’s yield
Yields move when prices move. Bond prices move a lot!
Yields reflect current pricing for each bond maturity.
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Martin