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

Define and discuss indirect world systematic risk, Define and discuss indir...

Define and discuss indirect world systematic risk. The indirect world systematic risk can be illustrated as the covariance among a nontradable asset and the world market portfo

Explain financial management and functional areas , 1.  Discuss the various...

1.  Discuss the various techniques of cash management for an efficient working capital Management. 2.  Discuss the MM Hypothesis of Capital structure and its importance in corpo

Aeromag, Our geologist, Rebecca Paulka, has estimated from the earlier expl...

Our geologist, Rebecca Paulka, has estimated from the earlier exploration that the Malian prospects have a 30% likelihood of containing economic quantities of uranium ore, the Nige

Dual currency bonds, In the case of dual currency b...

In the case of dual currency bonds, the interest is paid in one currency, while the principal repayment is made in another currency. Deep Di

State about the net present value, State about the Net present value N...

State about the Net present value Net present value maximisation is superior to the profits maximisation as an operational objective. As a decision criterion, it involves a co

Financial capital, Assume that you have just "run out of money" and are una...

Assume that you have just "run out of money" and are unable to move your "idea" from its development stage to production and the startup stage.  However, you remain convinced that

Calculate the stock price of the company, As the CEO of PG Industries, you ...

As the CEO of PG Industries, you are hired at the pleasure of the Board of Directors, who in turn are elected by the shareholders. You are considering Project A which you are convi

Explain the post-acquisition effect on eps, Post-acquisition Effect on EPS...

Post-acquisition Effect on EPS If the consideration is completely in shares, one of the effects would be a dilution in EPS suffered by Predator Company. The effect of dilution

Absolute performance standard, Absolute Performance Standard is a method of...

Absolute Performance Standard is a method of measuring an organization's development and how effective and efficient it is at operating its business. The absolute performance stand

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