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Chapter 6: Q. 2 (page 190)

Figure 7 shows a number of yield curves at various points in time. Go to http://www.bloomberg.com/ markets/rates/index.html and find the data for U.S. Treasury yields for different maturities. Does the current yield curve fall above or below the most recent one listed in Figure 7? Is the current yield curve flatter or steeper than the most recent one reported in Figure 7?

Short Answer

Expert verified

An upward sloping steeper yield curve represents the short-term interest rate will increase quickly in the future.

Step by step solution

01

Definition

Yield curve is a graph that is plotted with the fixed-interest securities against the time it takes to mature.

02

Explanation

The values are taken from the Bloomberg database and the graph is generated.

Yield curve:

The current yield rate falls above the recent yield. The current yield is steeper than the recent yield.

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Most popular questions from this chapter

If the yield curve suddenly became steeper, how would you revise your predictions of interest rates in the future?

If a yield curve looks like the one shown in the figure below, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the market’s predictions for the inflation rate in the future?

If the income tax exemption on municipal bonds were abolished, what would happen to the interest rates on these bonds? What effect would the change have on interest rates on U.S. Treasury securities?

What is a key function of credit-rating agencies? Do credit-rating agencies always provide reliable information? What was the role of credit-rating agencies in the sub-prime crisis of 2008?

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