Treasury yield curve, Financial Management

Assignment Help:

Treasury securities are government bonds issued by the US Treasury Department. These are issued through the Bureau of the Public Debt. They are debt-financing instruments of the US Federal government. These securities are of four types - Treasury Bills, Treasury Bonds, Treasury Notes and Savings Bonds. All these securities, except savings bonds are highly liquid and heavily traded in the secondary stock markets.

In treasury securities, there exist on-the-run treasury securities and off-the-run treasury securities. The on-the-run treasury securities are the most recently issued US Treasury bonds and notes. Normally, stockbrokers acquire these securities in large quantities and sell them to retail investors. These securities are highly liquid and are traded at higher prices when compared to that of off-the-run treasury securities. Off-the-run treasury securities are those treasury securities, which are issued, in earlier auctions.

These securities are fixed income instruments and are free from credit risk. These securities provide low yield when compared to that of non-treasury securities. This is due to their favorable tax treatment, high liquidity, being free from credit risk, and being non-callable securities.

The relationship between the yields offered on the treasury securities for each maturity when represented graphically is refereed to as treasury yield curve. A yield curve may be an upward sloping yield curve (longer the maturity, higher the yield), inverted yield curve (longer the maturity, lower the yield), or a flat yield curve (same yield regardless of maturity).

Figure 1: US Treasury Yield Curve

 

1523_us treasury yield curv.png

Table 1

Maturity

Yield on 03.07.2007

Yield on 02.07.2007

3 Month

4.71

4.65

6 Month

4.74

4.71

2 Year

4.83

4.85

3 Year

4.83

4.87

5 Year

4.87

4.91

10 Year

4.97

5.01

30 Year

5.07

5.10

 From the above two exhibits, it is clear that the longer the maturity, the higher will be the yield. Due to this feature, treasury yield curve is also known as the 'upward sloping yield curve' or the 'normal yield curve'.


Related Discussions:- Treasury yield curve

#title.OPERATING CYCLE, DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEG...

DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.

PROFIT MAXIMIZATION, what are the arguments in favour of profit maximizat...

what are the arguments in favour of profit maximization?

Plugging back of the future - important source of capital, Plugging back of...

Plugging back of the future of profit means the reinvestment by the concerns of its surplus in the business. it is an internal financial of the business and it is more suitable for

Risk associated with foreign direct investment, Discuss the risk associated...

Discuss the risk associated with Foreign Direct Investment. How do these risks differ from those encountered in domestic investment.

Empirical measurement of liquidity, Empirical Measurement of Liquidity: Th...

Empirical Measurement of Liquidity: The number of days a particular share is being traded reflects the liquidity of the market. If it is traded actively on 50% of the days when th

Explain how using a risk-adjusted discount rate, Explain how using a risk-a...

Explain how using a risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects? The risk-adjusted discount

Accounts, XYZ Ltd is a group of doctors, dentists, professional sports play...

XYZ Ltd is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in th

Walters and gordon model, Following are the details relating to three compa...

Following are the details relating to three companies which are identical in terms of ''r'' ABC ltd MNC ltd XYZ ltd Cost of capital

What is cash credit, Q. What is Cash Credit? A cash credit is an arrang...

Q. What is Cash Credit? A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guarantees

What is qualities of pay back method, Q. What is Qualities of Pay Back Meth...

Q. What is Qualities of Pay Back Method? Qualities of Pay Back Method:- (i) Simple: - The most important merit of this method is that it is simple to understand and easy to

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd