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

Agency theory, AGENCY THEORY An agency relationship may be defined as a...

AGENCY THEORY An agency relationship may be defined as a contract under which one or more people (the principals) hire another person (the agent) to perform some services on th

Time series analysis, In Time Series Analysis, we try to identify and deter...

In Time Series Analysis, we try to identify and determine the pattern of changes in the data collected over regular intervals of time. The data collected can be at a periodical int

Show regression analysis to estimate the default probability, 1. The standa...

1. The standard approach here is to calculate some conventional ratios. These ratios can afterwards be used along with regression analysis to estimate the default probability.

Find out the price of equity shares., Following details are related to thre...

Following details are related to three companies which are identical except in terms of ''r''. Company ABC Ltd. MNC Ltd. XYZ Ltd. Cost of capital 10% 10% 10% Earn per

What is unsystematic risks, Q. What is Unsystematic Risks? Unsystematic...

Q. What is Unsystematic Risks? Unsystematic Risks stems from a managerial inefficiency, technological change in the production process, availability of raw material, changes in

Meaning of working capital, Problem 1 What are the characteristics of s...

Problem 1 What are the characteristics of small business? Describe the various forms of organisation under which small business operate. Characteristics List the vari

Eoq inventory model primary variable, What are the primary variables being ...

What are the primary variables being balanced in the EOQ inventory model?  Explain The primary variables mortal balanced in the EOQ model are ordering costs and carrying costs.

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

DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.

What is the tolerable error, What is the Tolerable error In addition t...

What is the Tolerable error In addition to looking at material differences individually the auditor must list all the differences (material or not) and consider in total wheth

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