Term Structure of Interest Rates

Only available on StudyMode
  • Download(s) : 89
  • Published : April 4, 2013
Open Document
Text Preview
Treasury Strips

- For 2012, the Treasury Strips have an ascending yield curve that can only suggest interest rates are expected to increase for the next 30 years because the further along the maturity date, the more uncertain the security becomes; therefore, with greater risk requires a higher rate of return. Also, due to low inflation, a slow US economy and European economic concerns have contributed to high demand for US Treasuries causing yield rates to remain low.

- For 2010 and 2009, historical data was not available on the Wall Street Journal.

Treasury Bonds, Notes, and Bills

- In 2009, 2010, and 2012 the yield curve for Treasury Bonds, Notes, and Bills are all ascending yield curves. However, the interest rates for both 2009 and 2010 were higher than 2012. The difference in interest rates is the result of the current financial market and changes in market expectations for the next 30 years.

Treasury Inflation Protected Securities

- In 2012 the interest rates for Treasury Inflation Protected Securities creates a flat yield curve which is an indicator of an economic slowdown. The Federal Reserve often raises short-term rates in very robust economies to stem rising inflation. This action helps create a flat curve by pushing up short rates toward those of long rates.

- In 2010, the Treasury Inflation Protected Securities’ yield curve is an ascending one. An ascending yield curve typically means that the market expectations of economic expansion and/or inflation.

- In 2009, the Treasury Inflation Protected Securities displays a descending yield curve. The inverted yield curve suggests that inflation for short term maturities are expected to be higher than long term maturities and in the long run the forecast expects a deflation.

[pic]
tracking img