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

Calculate the maximum amount, Determine the amounts to be recognised in pro...

Determine the amounts to be recognised in profit or loss and in other comprehensive income in respect of the property for the year ended 31 December 2010.   Evaluate the compliance

Principles of good regulation, Principles of Good Regulation While perf...

Principles of Good Regulation While performing its functions, the FSA needs to take into account certain matters which are termed the ‘principles of good regulation'. The matte

Exam help, You plan to borrow $125,000 at a 9.5% annual interest rate. The...

You plan to borrow $125,000 at a 9.5% annual interest rate. The terms require you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying i

Ansawar, explain the concept of working capital.what are the factors which ...

explain the concept of working capital.what are the factors which influence the working capital?

Concepts of cost of capital, Concepts of Cost of Capital 1. Explicit ...

Concepts of Cost of Capital 1. Explicit Cost And Implicit Cost The explicit cost of any source of finance may be described as the discount rate that equates the current v

Leverage, evaluate the importance of leverage in a small scale company

evaluate the importance of leverage in a small scale company

Nominal interest rate, You are considering an investment in a 40-year secur...

You are considering an investment in a 40-year security. The security will pay $25 a year at the end of each of the first 3 years. The security will then pay $30 a year at the end

Calculate npv-irr - mirr - payback and discounted payback, Calculate NPV-IR...

Calculate NPV-IRR - MIRR - payback and discounted payback: 1-      Define and explain as well as you can of the following: a-      Goals and objectives of the Corporate Fir

Different types of cash flow to bondholder of coupon bonds, What are the di...

What are the different types of cash flow to the bondholder of coupon bonds? Coupon bonds deliver two different kinds of cash flow to the bondholder are as follows: a. Face

Briefly explain non financial objectives, Briefly Explain Non Financial Obj...

Briefly Explain Non Financial Objectives Monetary statements of any sort are only an expression of organisational activities that can be measured. Lots of the activities of an

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