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

Explain performing the capital budgeting analysis, Explain the difference b...

Explain the difference between performing the capital budgeting analysis from the parent firm’s perspective as opposed to the project perspective. The aim of the financial mana

Call and notice money, These funds represent borrowings made for a pe...

These funds represent borrowings made for a period of one day to upto a fortnight. However, the mechanism adopted to lend funds to the call and the notice money m

Explain about pink book, Q. Explain about pink book? This shows the var...

Q. Explain about pink book? This shows the various sub heads under which the lum sum amount sanctioned by allotment is to be spent and this indicates the works for which the al

What is cost of capital, What is Cost of Capital Cost of Capital is the...

What is Cost of Capital Cost of Capital is the rate which should be earned in order to satisfy required rate of return of the firm's investors. It may also be defined as the ra

What is simply offensive and what is humour, a) Ethics can be a rather prej...

a) Ethics can be a rather prejudiced matter; whether it is ethical to market products directly at children depends on several factors: The age of the children being targeted

Calculate roe when roe may be calculated more simply, Why would an analyst ...

Why would an analyst use the Modified Du Pont system to calculate ROE when ROE may be calculated more simply? Explain. In fact, an analyst wouldn't use the Modified Du Pont eq

Sinking fund function in retirement of an outstanding bond, How does a sink...

How does a sinking fund function in the retirement of an outstanding bond issue? Where a company puts payments that are then used to buy back outstanding bonds is known as a si

Convertible bonds, The issuer offers bonds with an option to the investor t...

The issuer offers bonds with an option to the investor to convert these bonds into equity shares at a pre-fixed ratio. These can be fully convertible bonds or partly co

Estimate financing types and requirements, This case provides the opportuni...

This case provides the opportunity to match financing alternatives with the needs of different companies. It allows the reader to demonstrate a familiarity with different types

Describe working capital decision, Q. Describe Working Capital Decision? ...

Q. Describe Working Capital Decision? Working Capital Decision: - It is anxious with the management of current assets. It is a significant function of financial management. Cur

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