Market Segmentation Theory

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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated August 5, 2020

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.

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Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Market Segmentation Theory, then please ask Paul.

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