Casey Sprake of Anchor Capital sheds light on frequently used terms such as ‘the 10-year', 'coupon', 'yield inversion’ and ‘zero coupon’.
SIMON BROWN: I’m chatting with Casey Sprake, investment analyst of fixed income at Anchor. Casey, I appreciate the time this morning. US 10-year bonds are spoken about a ton. I think a lot of us aren’t quite sure what that means. But at the top level they perhaps are the most important financial instrument in the world.
SIMON BROWN: The Fed has been on a massive hiking cycle – that’s not new news at all. Does the 10-year to a degree sort of keep track with what the Fed rate is looking at? SIMON BROWN: And we are talking the secondary market there. But of course it comes into the market via an auction process, which as I understand is the Federal Reserve saying, ‘We have X amount’ – or maybe it’s the Treasury – ‘We have X amount of 10-years we want to sell’. And market participants essentially bid for those bonds, and then some get at the rate they’d like and some don’t. But that rate is then set for the decade for the US government.
CASEY SPRAKE: Yes, a hundred percent. I can’t speak too much on the equity market; I’m a fixed-income girl myself. But of course they use it as a fixed rate that follows through, onto companies’ own lending, own corporate bonds, from there on out. CASEY SPRAKE: More or less at the same level, to try and put it down in simple terms. So you obviously have the bond, which is the overriding instrument itself, and then the ‘note’ is sort of the tradable element around there.
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