Term based interest rates
- expressed in annual/yearly time horizon (p.a./per annum)
- interest is just a promise
- debtor can default → unable to pay back interest
- different interest rates based on when a loan is taken on
- sovereign/country bond → risk free
- risk of e.g. Germany defaulting is basically 0
link to monetary policy
- monetary policy from macro
- goal of ECB: inflation of about 2% → 2 percent
- in recent years (since 2021) inflation was too high
- before inflation was too low
- stimulated lending/economic activity
- before inflation was too low
- PCA Principle Component Analysis