Question: Describe the Treasury yield curve by using the "Illustrative Treasury Yield Curves" [Figure 6-5] in your text, Fundamentals of Financial Management.
|
US Treasury Bonds
|
|
Maturity
|
Yield
|
Yesterday
|
Last Week
|
Last Month
|
|
3 Month
|
1.77
|
1.75
|
1.79
|
1.78
|
|
6 Month
|
2.01
|
2
|
2.07
|
1.91
|
|
2 Year
|
2.47
|
2.43
|
2.65
|
2.37
|
|
3 Year
|
2.39
|
2.36
|
2.58
|
2.34
|
|
5 Year
|
3.18
|
3.19
|
3.35
|
3.17
|
|
10 Year
|
3.88
|
3.9
|
4.00
|
3.91
|
|
30 Year
|
4.45
|
4.49
|
4.55
|
4.62
|
The above information shows that the US treasury yield curve as on July 8th 2008, the US Treasury bonds are arranged in the order of their maturity in X axis & yield rates are arranged in Y axis. See that the longer the maturity, the higher the yield. The curve is expressing the relationship between bond yields & maturity, it is called yield curve. We can see from the yield curve in the above figure that bonds with three months to maturity offered a yield of about 1.77%; those with thirty years of maturity offered a yield of just over 4.62%.
Using one of the items below, construct your own yield curve [similar to Figure 6-5]. The maturities must be 1, 5, 10, 20, & 30 years as used in Figure 6-5; however, the values will vary depending on which item you select. No more than 3 students may select the same item or prepare a yield curve on a similar company. The information you need to make your yield curve can be found on the following Web sites.
Construct your yield curve using Microsoft PowerPoint and post a single slide as an attachment to this. In your posting, describe what you learned about predicting interest rates using yield curves. How did your institution or company differ from expectations prior to seeing the yield curve? What does this information mean to you?