Ep 64: How The Credit Market Influences Your Loan Interest Rates

Jess: Jessie, have you ever wondered how rates are determined on your credit card, car loan, mortgage, even student loans? I definitely have and would love to understand how that works.

Jessie: What if I told you none of it was accidental? It all cascades in a line like dominoes.

Jess: Well, I would definitely believe you.

Jessie: Taylor Swift joke, for real though.

Jess: Of course.

Jessie: It all has to do, yes, with the yield curve.

Jess: It all has to do with the yield curve and Taylor Swift, apparently.

Jessie: The yield curve, that makes sense because the Fed affects the front end of the curve, which is short-term rates.

Jess: Which means when the Fed lowers or raises rates, it also lowers or raises our high-yield savings accounts, as we've talked about.

Jessie: So then what does that mean for the rest of the curve? Like, what determines the rest? Yeah, that's right.

Jess: Treasury market is also known as the credit market.

Jessie: Oh, wait, there's a credit market, too? I mean, like, everything really is in the name.

Jess: We say this over and over again, but okay.

Jessie: So there's a credit market.

Jess: Let's break down the credit market.

Jessie: You're listening to Market MakeHer, the self-directed investing education podcast that breaks down how the stock market works in an easy-to-understand manner from her perspective.

Jess: Lear her.

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Jessie: We're your hosts.

Jess: I'm Jessie DeNuit, your guide along this learning journey.

Jessie: My job is to ask all the questions you were thinking, and then some, to make it all make sense.

Jess: Because just like you, I am literally learning all of this stuff alongside you.

Jessie: And I want my money to make money.

Jess: So in order to do that, I need to understand how the system works.

Jessie: It's true.

Jess: You can't take advantage of a system if you don't understand it.

Jessie: I'm Jess Inskip.

Jess: I've worked in the self-directed space for 15 years now.

Jessie: I gave up my financial licenses to battle the misinformation about investing on social media because we have a responsibility to the next generation, not the previous.

Jess: So my job is to teach Jessie and all of you how the stock market works and the bond market, credit market, all the markets.

Jessie: Well, our personal missions formed our joint mission, which is this podcast.

Jess: Welcome to the investing education revolution.

Jessie: That's right.

Jess: All right, Jess.

Jessie: This is an interesting topic.

Jess: So I want to take a step back for a moment and reflect on what I've learned so far that ties into this concept.

Jessie: Okay.

Jess: Number one, the stock market is centered around the consumer because the stock market is literally just a bunch of companies.

Jessie: So when we spend money at these companies, they make revenue and that makes the company worth more.

Jess: Yeah.

Jessie: The stock market cares more about earnings growth, earnings expansion than anything.

Jess: And that's very centered around consumer health.

Jessie: You and I.

Jess: Yep.

Jessie: The consumer is all of us.

Jess: And remember, we have the power where we spend our money matters.

Jessie: Anyway.

Jess: It does.

Jessie: So number two, there is another market called the bond market.

Jess: Instead of owning a tiny portion of a company from a stock, you could own the company's debt.

Jessie: You can own the government's debt too.

Jess: These are bonds or debt securities, always in the name.

Jessie: So is the bond market the same thing as the credit market that you mentioned earlier? Yeah.

Jess: It's literally that simple.

Jessie: The equity market is a stock market and the bond market is the credit market.

Jess: Okay.

Jessie: Today we are talking about the credit market.

Jess: That's what determines all the interest rates or credit and that has to do with the yield curve then, right? Yes.

Jessie: So the credit market is just debt securities that are issued because companies can issue stocks.

Jess: Companies can also issue debt.

Jessie: So can municipalities and governments.

Jess: So what we're talking about here specifically is the treasury market, which is when the government issues their debts.

Jessie: The Fed impacts the front of the curve, which we've spent a lot of time on because it's what made sense right now because the Fed is lowering rates, but they were raising rates.

Jess: So that affected the front end of the curve.

Jessie: We needed to talk about that now.

Jess: It was timely.

Jessie: But market mechanics determine the back end of the curve, the long end of the curve, and that determines all of our borrowing rates.

Jess: So before we get into that, listeners, check out episode 18, Understanding the Yield Curve, if you want a refresher.

Jessie: And then we do have episode 52, that is an intro to bonds, if you want to understand the bond market more before we get into the rest of the yield curve.

Jess: Before we dissect that jargony stuff you just said, we should talk about what the yield curve is again.

Jessie: So the yield curve is made up of treasuries, which is literally the government's debt.

Jess: They issue debt securities that expire in different periods.

Jessie: So it's one month, three months, one year, five years, 10 years, 30 years.

Jess: And if you were to put those on a line chart, you would get the yield curve.

Jessie: Yeah, exactly.

Jess: Reminds me of the eighth grade homework I did last night with my son.

Jessie: And you can buy the government's debt.

Jess: It's on the credit market.

Jessie: It's arguably, arguably the most important market in the world.

Jess: It influences so, so much.

Jessie: And I truly believe this might be the most important concept for you and for all of our listeners to wrap their heads around.

Jess: Because you'll literally understand the domino effects of the system.

Jessie: If you don't want to participate in the stock market, but you're a consumer, this is the market you participate in, no matter what.

Jess: You kind of don't have a choice.

Jessie: You influence the stock market.

Jess: The credit market influences you.

Jessie: You influence the stock market.

Jess: We could do that big map thing, you know? Yeah, that would be cool.

Jessie: We need some visuals.

Jess: We'll get to that.

Jessie: Okay, so then how do all these rates affect me? So I think we should separate it into the front end of the curve.

Jess: So we can just review that, maybe dive a little bit deeper.

Jessie: Go into the middle and the long end.

Jess: And when I say front, middle, long, just the expiration periods is what I mean.

Jessie: Oh, of those bonds that we were talking about, treasuries, the one month, three months, five, 10, 30 year.

Jess: That's right.

Jessie: So that's what the curve line is? Right, right.

Jess: So front end, shorter dated securities, middle, middle dated securities, and long, much longer.

Jessie: So one to two years, three to 10, and then 10 to 30.

Jess: So we can first think about it, like you said, as a line from shortest to longest.

Jessie: And then we're going to see how that line curves.

Jess: We're going to see how it impacts it.

Jessie: So remember when we talked about how the yield curve can show you an expectation of growth? This is almost another lens on it.

Jess: And actually the why of why it can show the expectation of growth.

Jessie: It's literally the credit market.

Jess: So it's going to impact you so, so very much.

Jessie: The interest you pay and the interest that you make is what it impacts.

Jess: And that means you as an individual, a consumer.

Jessie: It means a company.

Jess: It means a small business.

Jessie: It means a big business.

Jess: And it also means the government, hence the credit market.

Jessie: It is literally debt for everyone.

Jess: And let's start with the front end of the yield curve.

Jessie: So that means it would be short-term rates, one month to two years, right? Yep, that's right.

Jess: So the Fed, we always say, impacts the front end of the curve.

Jessie: They set the Fed funds rate, which is the rate that banks borrow from each other.

Jess: So I want you to think of that as the Fed influences the front rate of the curve.

Jessie: Kind of like suggest what it does and it follows because of the domino effect of what it makes banks charge each other to access credit.

Jess: We went very deep on that and understanding the yield curve and we could spend a whole episode on that again.

Jessie: So I don't want to go into it too much because that'll take away from the point of today.

Jess: Okay.

Jessie: You're saying the Fed directly affects that front end of the yield curve, which is the short-term rates of one month to two years.

Jess: And that means like not just the short-term treasury bonds, but like even what interest rates we're getting on like our high yield savings accounts are and things like that, like in the immediate time frame.

Jessie: Yes.

Jess: Okay.

Jessie: They're made up of T-bills.

Jess: Remember, bills are shorter term and that's just the way you remember it for your Series 7 exams out there.

Jessie: Okay.

Jess: That affects your high yield savings account.

Jessie: So the interest that you earn in any short-term security.

Jess: So you might have gotten those e-bills.

Jessie: And I think you told me that you did, that your high yield savings account went down by 50 basis points or half a percent.

Jess: And that's because the Fed lowered rates by 50 basis points and they added another 25.

Jessie: So now we're at 75 bps.

Jess: So that is a real-time example of how the Fed impacts the front end of the curve, which is shorter-term security.

Jessie: So one-month treasuries to two-year treasuries, really, that affects your high yield savings account.

Jess: And that also affects credit cards and variable rate loans.

Jessie: I don't think we've talked about it at all.

Jess: Well, we haven't, but you know, if anyone's owned a credit card, you can see how those rates, they go up and down a lot.

Jessie: They fluctuate.

Jess: So this is why.

Jessie: It's based on what the Fed is doing, what's happening with inflation, like all the things we've been talking about this whole time on the podcast, right? Yeah, exactly.

Jess: And think about that.

Jessie: The Fed raises interest rates in order to tackle inflation.

Jess: And the way that they do that is to get consumers to stop spending.

Jessie: Well, it does impact lower-income cohorts much more because they tend to carry a lot more debt.

Jess: If you have a lot more debt, you already have a credit card balance.

Jessie: And then your variable rate loan, because it varies, it's not locked in, is going to go up because of what the Fed does.

Jess: That's a real example of constraining money supply because your bills just went up instantly.

Jessie: Yeah.

Jess: If you understand this is what I really mean.

Jessie: You can understand when the best time to take debt and take away debt is or to save or not, nonetheless.

Jess: Well, it's good that they have that dual mandate then because they're supposed to tackle inflation and, you know, maximum employment.

Jessie: And like, you know, if you're only tackling inflation or you're raising rates and that's making it harder for people who aren't making as much, then you also want to make sure people have jobs.

Jess: So it kind of like brings it back together as well.

Jessie: You understand what the point of the Fed is.

Jess: For sure.

Jessie: For sure.

Jess: We have great episodes on the Fed.

Jessie: Oh, yeah.

Jess: People never listen to that.

Jessie: Listen to that.

Jess: Starting this podcast, I had no idea I was going to learn so much about the Federal Reserve and how much that tied into things.

Jessie: It's all interconnected.

Jess: It really is.

Jessie: It's really interesting.

Jess: Credit cards, they're tied to what's called the prime rate.

Jessie: And that's influenced by short-term treasury yields, which are influenced by the Fed funds rate, which the Fed sets.

Jess: So see the little dominoes? Yeah.

Jessie: Then, okay, what is a prime rate? If the Fed funds rate is 5%, why are credit card rates considerably higher then? That's a good point.

Jess: So the prime rate is also known as the benchmark rate that is influenced by the Fed funds.

Jessie: But it's normally like three percentage points higher.

Jess: So if the Fed funds rate is right now, it's 4.75.

Jessie: At about three points higher, it should be at 7.75.

Jess: That's the prime rate.

Jessie: But just like that's how these companies make money, is by adding extra.

Jess: Yeah, it is.

Jessie: It's a portion of it.

Jess: Because remember, these are companies too.

Jessie: So they have add-ons.

Jess: It's their margin, right? And that's based on you as a person, which makes sense because you've got your risk profile.

Jessie: So you should have higher margins.

Jess: As in that margin, that add-on was 3%.

Jessie: That's the base.

Jess: You might have more if you have a worse credit score because you have a less likely of paying down that debt.

Jessie: So lower credit scores with limited credit history, you're going to end up having a higher margin, a higher APR.

Jess: Yeah.

Jessie: Than someone who has a better one.

Jess: And what some people don't even think about is the card type.

Jessie: If you've got a specialty card that gives you a lot of rewards, that might have a higher margin.

Jess: And it typically does because it gives you more back.

Jessie: Remember, you think about companies do everything to protect their profit margins.

Jess: Right.

Jessie: Always, always.

Jess: So if you've got the prime rate at 8.5 and then the credit card has a 12% margin, you're going to have a 20.5% APR.

Jessie: Okay, wait.

Jess: So the prime rate is the Fed funds rate or the prime rate is the Fed funds rate plus that 3% that you're talking about? Plus typically 3%.

Jessie: It's typically 3%.

Jess: Okay.

Jessie: So that's what the prime rate is.

Jess: And that's just like a standard rate.

Jessie: And credit card companies, banks, whatever, can take that prime rate and then add their margin as they see fit based on what they are offering back.

Jess: Yeah, absolutely.

Jessie: And your credit score, of course.

Jess: Credit score, credit worthiness, look at your FICO score, debt to income ratio, payment history, account behavior, and depending on the type of card as well.

Jessie: They've got a lot of rewards or even that introductory 0% offer.

Jess: They're going to make it up for it somehow.

Jessie: So when that expires, you might have a higher margin.

Jess: But there is something super, super important to know about that, just credit cards and how it's determined.

Jessie: Remember, finance is super, super, super regulated.

Jess: So there's something called the Card Act.

Jessie: They actually have to disclose their pricing structure.

Jess: So you could go in and you could literally see prime rate plus whatever, and they'll tell you how it's set and how their margins are determined.

Jessie: Transparency is totally required.

Jess: No, I've never heard of the card rate, which is amazing because so many people out there, which is great, like, you know, talk about personal finance and budgeting and all these things.

Jessie: I don't think I've ever heard of the card rate.

Jess: I didn't know that that was something available.

Jessie: So if you're talking to a credit card company or you wanting to get a new credit card, you can just call them up and ask what the, like, how would you phrase that? I would say, how are your rates determined? How do you determine your margins? Is it the prime rate plus whatever? And it's usually in the disclosures.

Jess: You should be able to find that.

Jessie: OK, we could pull up your credit card and look at it if you want one day.

Jess: Yeah, if you don't know what you're looking for, because you can read those disclosures and glaze over it and be like, OK, you don't know to look for something like that, then you're just not going to know to look for it.

Jessie: So exactly.

Jess: Well, and if you also notice the front end of the curve is coming down, you should notice your APR coming down.

Jessie: But if it doesn't come down as much, I'd call my credit card company and say, hey, I've got really good credit history.

Jess: Please narrow my margin.

Jessie: I didn't think about that either, because, yeah, just like our high yield savings account, like interest rates come down.

Jess: So should our credit card interest rates, like all interest rates are affected.

Jessie: So I didn't realize you could just call up your company and say, like, hey, can I have a better rate? I've been with you for 20 years.

Jess: Why, you know, you need to go ahead and give me a lower rate.

Jessie: You absolutely can and you should.

Jess: And to time it really, really well, you need to understand the yield curve.

Jessie: That's why it's important.

Jess: It all comes together.

Jessie: It is.

Jess: So we're all interconnected.

Jessie: It really, really is.

Jess: And one more piece of this I think is important, and this is going to be applicable to all the loans and credit things that we're going into.

Jessie: The economy also matters.

Jess: Even credit card companies, you can buy and sell these companies, Amex, Visa, MasterCard, all of them.

Jessie: They're a stock.

Jess: Stocks protect their profit margins.

Jessie: If there is a bunch of defaults all of a sudden or they're concerned about recessions, they may widen those margins anyways, because they always protect.

Jess: And that's kind of their way of raising prices.

Jessie: Yeah, that makes sense.

Jess: Right.

Jessie: So they could just come back with like, oh, well, because of economic risk or whatever, we're keeping it at this rate.

Jess: Sorry.

Jessie: Yeah.

Jess: Or this margin.

Jessie: Yeah.

Jess: OK.

Jessie: All connected.

Jess: OK, so that's the front end of the yield curve.

Jessie: Let's talk about the middle of the yield curve.

Jess: So I'm guessing the middle would be the medium term rates, which would be what, like 3 to 10 years? That's right.

Jessie: Yep.

Jess: And as a reminder, these are all treasury securities.

Jessie: So we're looking at government issued debt that expire within 3 to 10 years.

Jess: So the 3 to 5 mark is where your auto loans are typically tied to.

Jessie: And think about that.

Jess: Makes sense, right? Because, like, how long do you normally finance your car for? 3 to 5 years.

Jessie: That makes sense.

Jess: Yeah.

Jessie: Never thought about that.

Jess: Yeah.

Jessie: And there's normally, again, a margin attached to it.

Jess: So you'll look at the 3 to 5.

Jessie: Normally, the 3 to 5 is higher than the shorter term.

Jess: Because if you have a longer dated maturity, you should get more interest for it.

Jessie: But if the Fed is raising rates, since they impact the front end of the curve, it gets inverted.

Jess: The same things apply.

Jessie: What's your credit worthiness look like? What's your FICO score? What's your debt to income ratio? That determines the margin attached to those 3 to 5 treasuries.

Jess: And then that becomes your interest rate on your auto loans.

Jessie: So if you're seeing those starting to come down, the 3 to 5 treasury yields, that might be a good time to consider financing a car.

Jess: OK.

Jessie: When you know that's going to come down.

Jess: Which is what we talk about a lot when we keep it current.

Jessie: But today is educational and understanding.

Jess: But if the Fed only affects the front end of the yield curve, and we're talking about the middle, like, how do we, what's affecting the middle of the yield curve? Or how do we? Market mechanics.

Jessie: They're auctioned off.

Jess: So buying and selling.

Jessie: And remember, we talked about this with bonds.

Jess: Yields rise when prices fall.

Jessie: They have an inverse relationship.

Jess: And we even went into the math with that.

Jessie: So if there are more buyers of those bonds, then yields will fall.

Jess: More sellers, yields will rise.

Jessie: That's the secondary market.

Jess: And then they're auctioned off when the treasury first issues those.

Jessie: And that auction process determines the yield at that time.

Jess: The yield curve is literally the interest rate environment for these government debt.

Jessie: You can utilize that to understand growth expectations.

Jess: And those growth expectations are what set credit rates, which are your mortgages, auto loans, high yield savings accounts.

Jessie: Sick loans.

Jess: Yeah, all those things, bringing it all together.

Jessie: Yep.

Jess: So that's the middle.

Jessie: And that's where it can be up to 10 years for the middle of the curve? OK.

Jess: That's right.

Jessie: But that's the middle.

Jess: So front end, credit card, high yield savings account, middle, auto loans.

Jessie: So then the long end of the yield curve is the long term rates.

Jess: So that would be 10 to 30 years.

Jessie: That's right.

Jess: Your mortgage loans, very much tied to the 10 year, actually.

Jessie: Especially 30 year fixed rate mortgages are tied to the 10 year.

Jess: And that's because of refinancing and stuff like that, if it makes sense.

Jessie: OK.

Jess: Mortgages go into mortgage-backed securities.

Jessie: And mortgage-backed securities tend to have expiration dates of around 7 to 10 years due to people refinancing or prepayments that they're putting in.

Jess: Wait, what do you mean a mortgage-backed security? So we haven't talked about these type of securities.

Jessie: There is an advanced version of a mortgage-backed security that you might have heard of.

Jess: A CMO.

Jessie: Have you ever heard of a CMO? Mm-mm.

Jess: Collateralized Mortgage Obligation? Nope.

Jessie: Those are a little bit riskier version of a mortgage-backed security.

Jess: But you could buy people's mortgages.

Jessie: It's an alternative asset class.

Jess: That's what a mortgage-backed security is.

Jessie: And it would be kind of put together by credit worthiness.

Jess: CMOs are in tranches with different credit worthiness.

Jessie: So we could go into those if you want.

Jess: I thought maybe you heard of CMOs because that's what caused the 2008 financial crisis.

Jessie: Oh, yeah.

Jess: OK.

Jessie: Yeah.

Jess: Yep.

Jessie: Yeah, I think Margot Robbie described it in a bathtub with champagne.

Jess: Oh, yeah.

Jessie: In the big shirt.

Jess: Yeah.

Jessie: But they're tied to the 10-year, the 30-rate fixed mortgages.

Jess: But as a consumer, what valuable information? When do I want to buy a home? OK, well, if I know the Fed's going to raise rates and that impacts everything, it's a big domino effect.

Jessie: When they're going to lower it, big domino effect.

Jess: When should I get an auto loan? When should I maybe take on more credit card debt, make a big purchase? When should I refinance my home? OK, but so the Fed impacts the front end of the curve like we just talked about, which is the shorter-term stuff.

Jessie: But that is what like a domino effect that eventually makes it to the back end where mortgages and stuff are.

Jess: So is that why mortgage prices have not, or mortgage rates have not come down yet, even though the Fed lowered the federal fund by 75 basis points, 0.75%? So the reason why it hasn't come down is due to market mechanics and actually something called bond vigilantes, which I think should be next week's episode.

Jessie: Ooh.

Jess: Because of the Taylor Swift analogies I could put in with bond vigilantes.

Jessie: I see.

Jess: I've already gone through them.

Jessie: I'm so excited.

Jess: I'll allow it.

Jessie: That's not the reason why, Jessie.

Jess: There's always a reason for the Taylor Swift.

Jessie: It's just my secret talent.

Jess: I can put a Taylor Swift analogy anywhere.

Jessie: It's market mechanics.

Jess: So in short, bond vigilantes are very large sellers of bonds.

Jessie: They don't agree with fiscal policy, and it's their way of making fiscal changes.

Jess: Interesting.

Jessie: Yeah, I've never heard of these vigilantes.

Jess: And yeah, let's do an episode on that for sure.

Jessie: Somebody's coming in and putting in selling pressure.

Jess: So selling pressure means price is down.

Jessie: If prices are down, yields are up because yields and prices and bonds work inversely.

Jess: Right.

Jessie: We'll talk about bond vigilantes in another episode for sure.

Jess: But in terms of just discussing the long end of the yield curve, the Fed lowers the Fed funds rate.

Jessie: We saw it come down.

Jess: When do we see the long-term rates affected by that, or do we not? Because they only affect the short term.

Jessie: We do.

Jess: So everything follows after that.

Jessie: So the Treasury issues debt securities, and then the Treasury market has a secondary market.

Jess: So it's trading secondhand.

Jessie: So market mechanics will come in, and it should go down after that.

Jess: It just didn't this case because of bond vigilantes.

Jessie: Okay, so that was the reason.

Jess: I see now.

Jessie: That was the reason.

Jess: Okay, yeah.

Jessie: We definitely need to learn about those then because it's like we have an expectation of something to happen because that's the way it's supposed to work.

Jess: But something's coming in and changing things up.

Jessie: So it's good to be aware that that can happen.

Jess: Well, and it also shows you the power of the bond market.

Jessie: The credit market is literally the most important thing.

Jess: And if you're a big player in the credit market, you can control the economy.

Jessie: Wow.

Jess: Think about it.

Jessie: You're controlling what people borrow.

Jess: Yeah.

Jessie: Including the government.

Jess: You can use that power for good or evil.

Jessie: Oh, yeah.

Jess: The credit market is very important.

Jessie: It's very important.

Jess: It's accessible.

Jessie: It's very important.

Jess: It is very, very, very, very important.

Jessie: Yeah.

Jess: Yeah.

Jessie: It's blowing my mind.

Jess: I never considered all of these things.

Jessie: Okay.

Jess: To tie back in the long end of the yield curve, though, we have the mortgages, which is attached to the 10-year treasuries.

Jessie: And then what else? Did we cover everything? I think we have the mortgage-backed securities.

Jess: Mortgage-backed securities.

Jessie: Okay.

Jess: Student loans.

Jessie: Student loans.

Jess: They're the longer ones.

Jessie: Well, think about it, because they also last 10 to 20 years.

Jess: Or more.

Jessie: A lifetime.

Jess: Yeah.

Jessie: It feels like a lifetime.

Jess: Yeah.

Jessie: But that's attached to the longer end of the curve.

Jess: And then, of course, if they're private, then the same margins apply.

Jessie: That's it.

Jess: There's how the market influences the interest you pay or make.

Jessie: I mean, I guess when you do a 30-year mortgage, you're locked in at that rate, so you'd have to refinance and stuff.

Jess: It's like you can call up your mortgage company and be like, give me the lower rate.

Jessie: You have to go through a whole process to refinance the mortgage.

Jess: That's the difference between a variable rate and a fixed rate.

Jessie: Yeah.

Jess: If it's a variable rate.

Jessie: And also, that's why Canada, they lowered rates before we did.

Jess: And it's because when their central bank raised interest rates, it affected them quicker, because they have variable interest rates.

Jessie: Since the great financial crisis in the US, there are so much less variable interest rates.

Jess: That was part of what caused it, is having variable interest rates and a restrictive Fed.

Jessie: People had houses that they couldn't afford, and then when the Fed came in to tackle inflation, they really couldn't afford it, because their payments went up like crazy.

Jess: Yeah.

Jessie: Because they had variable rates.

Jess: But now, there are so much more fixed rates.

Jessie: Yeah.

Jess: I don't know anybody who has a variable rate mortgage, to be honest.

Jessie: But I heard they're getting a little more popular since the Fed started raising rates, because with the expectation that it's going to come down in the future.

Jess: The risk with that is that they could always go higher.

Jessie: It's true.

Jess: So true.

Jessie: Okay.

Jess: But you can see how understanding this can really help you take control of your finances.

Jessie: Oh, yeah.

Jess: But the hard thing is the bond market is actually, at least to me, more complicated than the stock market.

Jessie: Yeah.

Jess: And to take the time to understand it, I feel like you have to know the stock market first.

Jessie: We're on episode 64.

Jess: Yeah.

Jessie: And I mean, you don't need to listen to every episode to understand the bond market.

Jess: But it's not something that I feel like you could hear for the first time and be like, hold on.

Jessie: Yeah.

Jess: It'd be so confusing.

Jessie: No, yeah.

Jess: It's like there's a new piece to the puzzle every time, and it all comes together.

Jessie: And it is good to know everything because, I mean, the bond market and the credit market really affect your personal finance in a way, like an everyday kind of way because, yeah, not everyone has retirement accounts or is invested in the stock market.

Jess: But most people do have some form of credit borrowing, whether it's, yeah, credit card, student loan, auto loan, mortgage, whatever it is.

Jessie: And these things are affected by all.

Jess: It's good to understand how this all works.

Jessie: So you know, you know, I mean, sometimes you can't help it.

Jess: But, yeah, if you want to buy a house, you can maybe kind of wait and see when mortgages are coming down.

Jessie: Or if you're looking to get a new car, like you said, you kind of know, like, okay, if the front end is affected and rates are coming down, then, you know, at some point the auto loans should be coming down.

Jess: So if I can hold it out a little bit longer, then I could get a better rate if I need an auto loan.

Jessie: Like that type of stuff is just good to know.

Jess: Yeah.

Jessie: So real life example, I bought a house when COVID was happening because the Fed set interest rates to zero and the Fed was actually raising rates into 2018.

Jess: And then COVID happened and they brought it back to zero.

Jessie: And I looked at my husband and I said, we're buying a house.

Jess: And to this day, he thanks me.

Jessie: It's because I knew that the Fed drastically lowered the rates to zero.

Jess: I don't think we're ever going to be at zero again.

Jessie: And I'm like, we're ready to upsize in our life.

Jess: Let's go get a house now.

Jessie: So I know that we can get more bang for our buck.

Jess: Yeah, smart.

Jessie: And we did.

Jess: You did.

Jessie: Because I know how the yield curve works.

Jess: And I want our listeners and you to know how the yield curve works so you can take advantage of those moments.

Jessie: Oh, yeah.

Jess: This is why we do this.

Jessie: It should be public knowledge.

Jess: Like everyone should be able to understand how this works and not just like, you know, like nobody teaches this stuff.

Jessie: It's very rare this stuff is taught in high school or anything like that.

Jess: So that's what we're here for.

Jessie: I think we'd be fun professors.

Jess: I'd take our class, Jessie.

Jessie: Oh, yeah.

Jess: I am taking this class.

Jessie: Oh, yeah.

Jess: It's true.

Jessie: I've been taking this class.

Jess: Not only am I a teacher, but I'm also a plus.

Jessie: Number one student.

Jess: You are.

Jessie: You're the teacher's pet.

Jess: Okay.

Jessie: Another great episode.

Jess: So the yield curve shows growth expectations.

Jessie: But clearly we can use it to understand when to take on what kind of debt.

Jess: Because everything, like we said, is really this giant puzzle that is coming together over time to help us all understand how our money works.

Jessie: Yes.

Jess: And next week we'll talk about bond vigilantes and I'll bring in how the U.S.

Jessie: dollar works into the bond market.

Jess: And then the stock.

Jessie: It's going to be fun.

Jess: I'm actually very excited.

Jessie: But today was an education only episode.

Jess: That's why we also talk about what's happening in the market so you can make those connections.

Jessie: You cannot time the market.

Jess: That's fairly important to know.

Jessie: I'm not going to tell you exactly when the Fed is going to lower rates.

Jess: We can get a good idea.

Jessie: We can get like a range because they tell us.

Jess: But that means we can prepare and preparation starts with understanding.

Jessie: We can prepare for the fact that they're going to lower rates and that's going to impact the curve.

Jess: That's what I mean.

Jessie: This is how we take advantage of the system.

Jess: And if you'd like to be more prepared on what's happening in the market, I recommend that you sign up for our newsletter where Jess gives you all the important stock market happenings, events, info, everything you need to know to be an informed investor and work this system to your advantage.

Jessie: Just like the wealthy folks do.

Jess: Because a lot of people think the stock market is rigged to only serve the super rich.

Jessie: But the truth is all this information is publicly available to all of us.

Jess: And you just need someone to explain it to you because it's not taught to most of us.

Jessie: Yeah.

Jess: And we're here to do that.

Jessie: I really believe it's if you have rich parents, your rich parents teach you.

Jess: And then that's how it ends up being unfortunately marginalized or polarizing.

Jessie: But we're here to do that.

Jess: This podcast doesn't cost a dime.

Jessie: Maybe we'll sell things in the future.

Jess: I won't say that we won't because we have to make money at some point.

Jessie: But podcasts will always be free because we believe this sort of education should be available to everyone.

Jess: And if you would like to give back to us, the best way is to share this podcast with others.

Jessie: Share it with a friend.

Jess: Be like, yo, I know you don't want to participate in the stock market, but if you understand this, you know, you can do these things.

Jessie: But you really need to.

Jess: You really do.

Jessie: Or leave us a review, a star rating.

Jess: They really, really, really, really make our day.

Jessie: I'm not kidding.

Jess: It's true.

Jessie: It does.

Jess: But follow, share a social post.

Jessie: It really helps us spread the knowledge.

Jess: We also have a donation button we will link since it's that donation time of the year for some of you if you are so inclined and able.

Jessie: And yeah, like Jess said, we're not going to pretend that we're not also working with sponsors to help us cover the cost of running this whole operation.

Jess: So you will likely start hearing ads.

Jessie: But always feel free to leave your feedback because we're ultimately here for all of you.

Jess: That's right.

Jessie: And know if and when we have sponsors, we vet them.

Jess: And until next week, keep building your knowledge so we can keep breaking all those barriers.

Jessie: Remember, investing involves risk.

Jess: There is always potential to lose money when investing in securities.

Jessie: Market Maker provides educational content and resources for informational purposes only.

Jess: We are not registered financial advisors and do not provide personalized investment advice.

Jessie: Any information provided by Market Maker on our website or podcast is not intended to be a substitute for professional financial advice.

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