(Full text count: 1764 words, it takes about 6 minutes to read)
Brothers, sisters, younger brothers and sisters, hello everyone, I am classmate Wang.
Today we talk about interest rates.
01 | What is the interest rate
Suppose we want to buy a mobile phone and the price is 3,000 yuan. Then, 3,000 yuan is the price of the mobile phone.
Money, or currency, is essentially a general equivalent and a commodity. Its price is expressed by interest rates.
That is, the price of ordinary commodities is expressed in money, and the price of money is expressed in interest rates.
02 | The composition of the interest rate
3 The price of a mobile phone worth 3,000 yuan is composed of two major items: cost and profit. The same goes for the interest rate. assumes that the loan interest rate is 5%. Then, 5% is also composed of cost and profit.
Whether it is the profit of physical products or the profit of currency, they are the results of market games, and it is generally difficult to make excess profits.
As for costs, physical products have production costs, transportation costs, and advertising budgets. The interest rate is mainly composed of two aspects, risk premium and risk-free interest rate.
For currency products, risk itself is a cost . If Xiao A has good past credit and personal asset status is also very good, then the bank's risk will be very small, and the risk interest rate given by the bank to Xiao A will be relatively low. .
If Little B has poor credit in the past, has a record of not repaying money he owes, has an unstable job, fishes for three days, surfs the Internet for two days, and has no fixed place to live, then the bank will be very afraid of this person borrowing money and not repaying it. , the risk interest rate for him is relatively high.
How do banks mainly judge our past credit? Mainly personal credit report , so readers of Mr. Wang must take good care of their personal credit report, just like you take care of your own eyes. Don't give guarantees to others easily, don't overdue your credit card, don't. . . is good, let’s get back to the topic.
03 | Risk-free interest rate
Regarding interest rates, the most important thing is to understand the risk-free interest rate, which is a fundamental basis for calculating interest rates. The risk-free interest rate means that the money lent at this interest rate is completely risk-free. Is there any risk-free thing in this world? Strictly speaking there is no such thing. But capital never sleeps. From the moment it is born, it must never stop looking for profits. It cannot be left there forever, so people will definitely look for the safest target they can find.
The final result is that the national debts of major countries around the world are backed by their own national credibility. This can be regarded as a zero-risk target. Note on , this must be a big country. If it is a small country like Zimbabwe and , forget it.
And the interest rate of national debt is not fixed, it is also determined by the market mechanism. After many people see Wang’s answer, the sentence in the picture below may come to mind.
Okay, let's expand a little bit. It is determined by the market, that is, by the relationship between supply and demand. Specifically, there are two models of , one is measured from the supply and demand of bonds, and the other is measured from the supply and demand of currency. Specifically, we will use one model Open an article and won’t describe it in detail here.
Treasury bonds have different maturities, short-term one-day, one-month, medium-term one-year, two-year, five-year, seven-year, ten-year, and the longest is 30 years. Each term has a different risk-free interest rate . This is also easy to understand. How can one-year treasury bonds and 30-year treasury bonds have the same interest rate? The trend of the risk-free interest rate curve is roughly the picture below.
04 | Risk-free interest rate curve
Generally speaking, it is a curve from the lower left to the upper right. The longer the period, the higher the interest rate.If we find that the right side of this curve is lower than the left side, that is to say, the long-term interest rate is actually lower than the short-term interest rate. This is the interest rate inversion . The interest rate inversion rarely occurs. If encounters it, it means that it is possible. To recession .
Under normal circumstances, the risk-free interest rate curve is a curve from the lower left to the upper right . There is also a special theory in economics to prove it - the liquidity premium theory of term structure . This theory holds that the interest rate on long-term bonds is equal to the sum of the average of the expected short-term interest rates before the long-term bond matures and the liquidity premium that changes with changes in bond supply and demand.
Among them, the average expected short-term interest rate means that the interest rate of long-term bonds is equal to the average short-term interest rate expected by people during the validity period. For example, the interest rate on a two-year bond should be the average of the expected interest rates in the first and second years.
Liquidity premium, usually, there are fewer people willing to hold long-term bonds, there is less demand, so the price is lower and the interest rate is higher.
The text is a bit hard to pronounce. Let’s give a simple example and everyone will understand.
If the one-year interest rates are expected to be 5%, 6%, 7%, 8% and 9% in the next five years, investors prefer short-term bonds. Assume that the liquidity premium of bonds with maturities of 1 to 5 years is 0 0.25% 0.5% 0.75% 1.0% respectively.
Then the interest rate of the five-year bond is
(5%+6%+7%+8%+9%)/5+1.0%=8%
So we can judge the market sentiment based on the trend of the risk-free interest rate curve Expectations of future short-term interest rates . If the slope of the curve becomes larger and larger in the future, it means that short-term interest rates will rise in the future. If the curve rises relatively gently, it means that short-term interest rates should remain unchanged in the future. If the trend is flat, then short-term interest rates may fall slightly in the future. If the curve flips downward, it means that the market expects short-term interest rates to fall sharply in the future. This is what we call an interest rate inversion.
is not finished.
I wish you be brave and diligent, and may all your wishes come true.
Mr. Wang
2022.7.1
