Market Segmentation Theory
What is Market Segmentation Theory?
Market segmentation theory posits that the behavior of short-term and long-term interest rates are mutually exclusive.
How Does Market Segmentation Theory Work?
Market segmentation theory suggests that the behavior of short-term interest rates is wholly unrelated to the behavior of long-term interest rates. In other words, a change in one is in no way indicative of an immediate change in the other. Both must be analyzed independently. Accordingly, the yield curve reflects the market supply and demand for Treasury bonds of a certain maturity only.
Why Does Market Segmentation Theory Matter?
Market segmentation theory suggests that it is impossible to predict future interest rate outcomes based on short-term interest rates. Moreover, long-term interest rates (for example, the rate of the 30-year Treasury bond) only express market expectations and do not indicate that a definite outcome will occur.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.