I've been trying to educate myself on some financial terms and I've gotten into a point where I'm a little confused.
Reading Understanding Term Spreads or Interest Rate Spreads I guess to understand that in simple terms a spread is comparing interest rates on bonds of equal value that mature at different times.
My confusion is in the last paragraph of the article.
If the term spread is positive, the long-term rates are higher than the short-term rates at that point in time and the spread is said to be normal. Whereas a negative term spread indicates. When would an entity ever issue a longer termed bond at a lower interest rate than the same bond at a shorter term. Why would any investor lock their money in for longer for a smaller return?
I understand that total amount gained would/could be greater on longer term bond just because it is locked away for longer, but once the shorter bond matures could that investment not be reinvested somewhere else for the delta time between the two bonds resulting in a much greater return?
Is interest rate forecasting accurate enough to warrant an inverted yield curve if they predict that interest rates will take a nose dive? (This is the only way I can see a company issuing an inverted yield curve)
How/why would an entity offer bonds with an inverted yield curve?
Since I'm very green to investing I'm sure that there is something I'm missing.
Edit: After a little research: Can an inverted yield cure only happen after a bond is issued, when investors are trading the various bonds?