Saturday, February 20, 2010
Interest rate cycles
Voltron says: Banks make money by borrowing cheaply short term (from the Fed) and lending at a higher rate long term (to you). The larger the difference between the short term interest rate (2 year treasuries, for example) and the longer term interest rates (10 year), the more money banks make. This difference ("the spread") seems to run in cycles and may be approaching a peak.