[youtube=http://www.youtube.com/watch?v=9zDjNNPAqvE&w=420&h=315]

Today I discuss how the current term structure of bond yields can tell you what the market thinks interest rates will be in the future. In the video I use an example of an investor who has an obligation in 5 years. He wants to know if he should buy a 5 year bond, or stay short term and buy a 2 year bond then reinvest in a 3 year bond after rates rise. Our example shows that the market is already predicting rising rates due to its steeply upward sloping curve. In fact the yield curve implies the 3 year bond yield will increase 325% over the next 2 years.