Understanding Term Spreads or Interest Rate Spreads

Understanding Term Spreads or Interest Rate Spreads Term spreads, also known as interest rate spreads, represent the difference between the long-term interest rates and short-term interest rates on debt instruments such as bonds. In order to understand the significance of term spreads, we must first understand bonds. Bonds and Term Spreads Term spreads are most often used in the comparison and evaluation of two bonds, which are fixed interest financial assets issued by governments, companies, public utilities, and other large entities. Bonds are fixed-income securities through which an investor essentially loans the bond issuer capital for a  defined period of time in exchange for a promise to repay the original note amount plus interest. Owners of these bonds become debt holders or creditors of the issuing entity as entities issue bonds as a means of raising capital or financing a special project. Individual bonds are typically issued at par, which is generally at $100 or $1,000 face value. This constitutes the bond principal. When bonds are issued, they are issued with a stated interest rate or coupon that reflects the prevailing interest rate environment at the time. This coupon reflects the interest that the issuing entity is obligated to pay to its bondholders in addition to repayment of the bond principal or the original amount borrowed at maturity. Like any loan or debt instrument, bonds are also issued with maturity dates or the date at which full repayment to the bondholder is contractually required.​​​ Market Prices and Bond Valuation There are several factors at play when it comes to the valuation of a bond. The issuing companys credit rating, for instance, can influence the market price of a bond. The higher the credit rating of the issuing entity, the less risky the investment and perhaps the more valuable the bond. Other factors that can influence a bonds market price include the maturity date or the length of time remaining until expiration. Last, and perhaps the most important factor as it relates to term spreads is the coupon rate, particularly as it compares to the general interest rate environment at the time. Interest Rates, Term Spreads, and Yield Curves Given that fixed-rate coupon bonds will pay the same percentage of the face value, the market price of the bond will vary over time depending on the current interest rate environment and how the coupon compares to newer and older issued bonds that may carry a higher or lower coupon. For instance, a bond issued in a high-interest rate environment with a high coupon will become more valuable on the market if interest rates were to fall and new bonds coupons reflect the lower interest rate environment. This is where term spreads come in as a means of comparison.   The term spread measures the difference between the coupons, or interest rates, of two bonds with different maturities or expiration dates. This difference is also known as the slope of the bond yield curve, which is a graph that plots the interest rates of bonds of equal quality, but different maturity dates at a specified point in time. Not only is the shape of the yield curve important to economists as a predictor of future interest rate changes, but its slope is also a point of interest as the greater the slope of the curve, the greater the term spread (gap between short- and long-term interest rates). 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 that the yield curve is inverted and the short-term rates are higher than the long-term rates.

5 Interesting Facts About Slavery in the Americas

5 Interesting Facts About Slavery in the Americas Slavery is a topic that never leaves the public consciousness; films, books, art, and theater have all been created about the institution. Yet, many Americans still know far too little about the transatlantic slave trade. They cant say when it began or ended or how many Africans were kidnapped and enslaved against their will. Its difficult to discuss current issues related to slavery, such as reparations, without first understanding how the slave trade left its imprint on Africa, the Americas, and the world. Millions Shipped to the Americas While it’s common knowledge that six million Jews died during the Holocaust, the number of West Africans shipped to the Americas during the transatlantic slave trade from 1525 to 1866 remains a mystery to much of the public. According to the Trans-Atlantic Slave Trade Database, 12.5 million Africans were loaded up like human cargo and forever separated from their homes and families. Of those Africans, 10.7 million managed to live through the horrific journey known as the Middle Passage. Brazil: Slaverys Epicenter Slave traders shipped Africans all over the Americas, but far more of the enslaved population ended up in South America than any other region. Henry Louis Gates Jr., director of the Hutchins Center for African and African American Research at Harvard University, ​estimates that a single South American country- Brazil- received 4.86 million, or about half of all slaves who survived the trip to the New World. The United States, on the other hand, received 450,000 Africans. According to a 2016 U.S. Census Bureau report, roughly 45 million blacks live in the United States, and most of them are descendants of the Africans forced into the country during the slave trade. Slavery in the North Initially, slavery wasn’t just practiced in the Southern states of the United States, but in the North as well. Vermont stands out as the first state to abolish slavery, a move it made in 1777 after the U.S. liberated itself from Britain. Twenty-seven years later, all of the Northern states vowed to outlaw slavery, but it continued to be practiced in the North for years. That’s because the Northern states implemented legislation that made slavery’s abolition gradual rather than immediate. PBS points out that Pennsylvania passed its Act for the Gradual Abolition of Slavery in 1780, but gradual turned out to be an understatement. In 1850, hundreds of Pennsylvania blacks continued to live in bondage. Just more than a decade before the Civil War kicked off in 1861, slavery continued to be practiced in the North. Banning the Slave Trade The U.S. Congress passed a law in 1807 to ban the importation of enslaved Africans, and similar legislation took effect in Great Britain the same year. (The U.S. law went into effect on Jan. 1, 1808.) Given that South Carolina was the only state at this time that hadn’t outlawed the importation of slaves, Congress’ move wasn’t exactly groundbreaking. What’s more, by the time Congress decided to ban the importation of slaves, more than four million enslaved blacks already lived in the United States, according to the book Generations of Captivity: A History of African American Slaves. Since the children of those enslaved people would be born into slavery, and it wasn’t illegal for American slaveholders to trade those individuals domestically, the congressional act did not have a marked impact on slavery in the U.S. Elsewhere, Africans were still being shipped to Latin America and South America as late as the 1860s. Africans in the U.S. Today During the slave trade, about 30,000 enslaved Africans entered the U.S. yearly. Fast forward to 2005, and 50,000 Africans annually were entering the U.S. on their own volition. It marked a historic shift. â€Å"For the first time, more blacks are coming to the United States from Africa than during the slave trade,† The New York Times reported. The Times estimated that more than 600,000 Africans lived in the U.S. in 2005, about 1.7 percent of the African-American population. The actual number of Africans living in the United States might be even higher if the number of undocumented African immigrants was tallied.