Yield curve shift, Financial Management

Assignment Help:

The relative change in the yield for each treasury maturity is known as a shift in the yield curve. When the change in the yield for all the maturities is same, then there is a parallel shift in the yield curve; and when there is change in yield for all the maturities is not same, then there is a non-parallel shift in the yield curve.

There are two types of non-parallel yield curve shifts:

  1. A twist in the slope of the yield curve refers to the flattening and steepening of the yield curve. When the slope of yield curve decreases then it is known as flattening of the yield curve. When the slope of yield curve increases then it is known as the steepening of the yield curve.

  2. The second type of non-parallel yield curve shift is a change in the humpedness or curvature of the yield curve. These shifts involve the relative movement of yields at the long and short maturity sectors of the yield curve relative to the intermediate maturity sector of the yield curve. Such kind of non-parallel shift which changes the curvature of the yield curve is known as butterfly shift. Here, the intermediate maturity sector can be viewed as the body of the butterfly, and the short and long Maturity Sectors can be viewed as the wings of the butterfly.

Figure 1: Parallel Shifts of the Yield Curve

2017_parallel shift.png

Figure 2: Non-Parallel Shifts of the Yield Curve

(a) Flattening

1734_non parallel shift.png

(b) Steepening

1450_steepning.png

(c) Butterfly Shift (i) Positive

933_butterfly shift.png

(d) Butterfly Shift (i) Negative

631_butterfly shift1.png


Related Discussions:- Yield curve shift

., give and explain the seven sources of finance

give and explain the seven sources of finance

Cost of equity from new common stock, Weaver Chocolate Co. expects to gain ...

Weaver Chocolate Co. expects to gain $3.50 per share during the present year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its

What is accumulated depreciation, Q. What is Accumulated Depreciation? ...

Q. What is Accumulated Depreciation? Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSET or group of assetsfrom the time the assets were placed in services unt

Hedging, how does "x" company hegde itself? the company name will be shared...

how does "x" company hegde itself? the company name will be shared later.

What spot exchange should one forecast 5 years into future, The current spo...

The current spot exchange rate is Dr240/$1.00. Long-run inflation in Greece is calculated at 8 percent yearly and 4.5% in the United States.  If PPP is expected to hold among the t

MM., What are the assumptions of MM(Modigliani Miller) approach?

What are the assumptions of MM(Modigliani Miller) approach?

Mr.Manikanta, can u tell me the various approaches followed by FMCG Compani...

can u tell me the various approaches followed by FMCG Companies in test markets

Break even sales, given just the sales and profit values, how is the break-...

given just the sales and profit values, how is the break-even sales calculated?

Define intermediation, Define intermediation The financial system makes...

Define intermediation The financial system makes it probable for surplus and deficit economic units to come together, exchanging funds for securities, to their mutual advantage

Gold standard, what is the traditional gold standard? and how does it diffe...

what is the traditional gold standard? and how does it differ from our current monetary system.

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