The Mauritius Government Bonds Yield Curve is steepening. What does this imply for the Mauritian economy?
In the United States, the Yield Curve is considered as a leading economic indicator. Basically, the yield curve is a tool that helps you understand bond markets, interest rates, and the health of the economy as a whole. With a yield curve, one can easily visualize and compare how much investors are earning globally from short-term and long-term bonds.
Interest rates on bonds sold by the same issuer with different maturities behave quite differently, depending on how investors are feeling about risk, trends in the broader market, and the performance of the economy as a whole.
Yield curves take different shapes depending on the state of the bond market and the economy. Each shape suggests a different potential outlook for bonds and can be classified as normal, steep, inverted, flat, or humped.
A steepening flat curve indicates higher interest rates and thus higher returns for investors. This curve also indicates that investors expect better market conditions in the long term as compared to the short term.
The Mauritius Government Bonds Yield Curve is steepening. 6 months ago, the Mauritius yield curve indicated a normal slope, a sign that market conditions and the economy as a whole are functioning normally. The current steeper curve reveals that although investors expect better market conditions to prevail in the long term, they are also less willing to invest in the Mauritian economy on a short-term basis.
The current curve remains relatively flat over the first two years before steepening after the third year.
6 months ago, interest rates on a 3-year Mauritius Government Bond equaled to 0.75%. Today, interest rates stood at 1.25% over a similar period.
Although this means that investors believe that the Mauritian economy is now performing better than 6 months ago, it also means that long-term foreign loans will be more expensive for Government.
