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

Mushrooming of public private partnerships, Question 1: i) Activity Bas...

Question 1: i) Activity Based Costing is better than the Traditional Product Costing. Discuss, by making use of empirical evidence ii) The replacement of cash-based accounti

Hedge against this foreign currency exposure, Question: Part A: Just...

Question: Part A: Justify and criticize the usual assumption made in Financial Management literature that the objective of a firm is to maximize the wealth of its sharehol

Initial recognition of the financial instruments, a) On 1 st January 2010,...

a) On 1 st January 2010, Grimm issued 400,000 convertible £1 6% debentures  for £600,000.  The professional fees associated with the issue were £40,000 and the fair value of simil

Expalin depository institutions, Depository institutions Depository ins...

Depository institutions Depository institutions: intermediaries with a important proportion of their funds derived from customer deposits - include commercial banks - savings i

Reforms and outlook, Reforms and Outlook Pension funds in India is an a...

Reforms and Outlook Pension funds in India is an area that is yet to be fully explored compared to those of other economies of the world. The pension reforms are expected to fa

Case study, credit limit decision bajaj electronics company

credit limit decision bajaj electronics company

What is logistics, What is logistics? Explain the important activities in l...

What is logistics? Explain the important activities in logistics systems. Logistics - meaning . Working of logistics systems - three important activities - Order processing, I

Show gross vs net working capital, Q. Show Gross Vs net working capital? ...

Q. Show Gross Vs net working capital? The distinction between the gross working capital or the net working capital does not in any way undermine the relevance of the concepts o

Objectives of working capital management, Q. Objectives of working capital ...

Q. Objectives of working capital management? The objectives of working capital management are habitually stated to be profitability and liquidity. These objectives are habitual

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