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

Premium, The amount by which the market price exceeds the conversion ...

The amount by which the market price exceeds the conversion value or the investment value called the premium. When expressed as a percentage, it is given by,

International finance problem, International Finance Problem Analyze th...

International Finance Problem Analyze the attached case, along the lines indicated by the Assignment questions listed at the end of the case.  Since you will have plenty of tim

Stakeholder vs shareholder approach, QUESTION 1 (a) What do you underst...

QUESTION 1 (a) What do you understand by the term Civil Society Organisations? (b) Distinguish between sectional and promotional groups. Give examples to support your answer

Finance, a) Describe five factors that should be taken into account by a bu...

a) Describe five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.

Treasury returns resulting from yield curve movements, Robert Litterman and...

Robert Litterman and Jose Scheinkman were the first to study how changes in the shapes of the yield curve affect the total return on the Treasury securities. The histor

Fin 2110, 1. Which of the following statements concerning the cash flow pro...

1. Which of the following statements concerning the cash flow production cycle is true? a) The profits reported in a given time period equal the cash flows generated. b) A company’

Financial analysis task force, Task I am sure you are aware that the c...

Task I am sure you are aware that the corporate annual meeting is coming up soon. As part of the Treasurer's presentation, I have been asked to propose a Special Capital Requi

Name two patterns of cash flows for a share of common stock, Name two patte...

Name two patterns of cash flows for a share of common stock. How does the market define the value of the most common cash flow pattern for common stock? Cash flows for a share

Monte carlo simulation model, Monte Carlo Simulation Model Monte Carlo...

Monte Carlo Simulation Model Monte Carlo simulation is used to analyse to what extent the valuation of the chosen company is dependent on the assumptions. Monte Carlo simulati

Issuance of securities, Issuance of securities  : Security issues by co...

Issuance of securities  : Security issues by companies are a novel and common way of raising funds that in turn help realize their growth aspirations. It is therefore necessary

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