It is normal for l-term interest to be higher than s-term. If they are consistently lower than st over a three-month period, that means that wealth-holders are expecting Lterm rates to fall and bondprices to rise. Test

Lterm are normaly higher than Sterm

If Lterm are at least 1% below Sterm in 3 months then after a year Lterm rates will have fallen by at least 1% point in a large majority of cases.

 

LR rates are higher, because interest can go up, so lenders needs to be compensated.

Short term interest is the treasury bill. Lterm british govn securities, long dated 20 years.

 

Divide to 2 periods: 70-78 and to 95.

First period theory works.

Second period does not work - Mrs Thatcher

Anwers:

1.      government policy - can infuence short term interest.

2.      policy objective was to control Ms and inflation. Ms still grew.

3.      ERM

After ERM and Thatcher gone thing turned back to normal.

 

Second proposition - you could make money

Not working verry well.

 

Can we modify 2nf.

1 year is arbitary. . You by the bond when law applies, but you do not sell them after a year but when the Lterm interest has fallen 1%. This always happened.  Period you have to wait varies a great deal.

 

How to do these things

If you are wanting to producing these figures - 2 finger method. One finger on the bill rate and on to bond rate. You can see if l or 2nd is higher.