A "normal" term structure of interest rates would depict
A "normal" term structure of interest rates refers to a situation where longer-term interest rates are higher than shorter-term interest rates. This reflects the expectation of future economic growth and inflation.
To determine the current term structure of interest rates, you can look at the yield curve. The yield curve is a graphical representation of the interest rates on bonds of the same credit quality but different maturity dates. It shows the relationship between the term (or duration) of the bond and its yield.
To construct the yield curve, you would need to gather the interest rates of bonds with various maturities. These rates can typically be found through financial news websites, market data providers, or financial institutions. Make sure you're gathering data for bonds with similar credit quality to ensure comparability.
Once you have the interest rates for various maturities, you can plot them on a graph, with the x-axis representing the time to maturity and the y-axis representing the yield. Connect the data points to form a curve, which will indicate the term structure of interest rates.
In a normal term structure, you would observe an upward-sloping yield curve, where the longer the maturity, the higher the yields. This suggests that the market expects higher interest rates or inflation in the future.
However, it's important to note that the term structure of interest rates can change over time due to numerous factors such as market conditions, central bank policies, and economic indicators. Monitoring the yield curve is crucial for investors and policymakers to understand the market's expectations and make informed decisions.