Review the attached pictures and answer the following questions: 1) What are the

Question

Review the attached pictures and answer the following questions:

1) What are the current mid yields for the following US treasuries?

*5 year Treasury Bond

*10 year Treasury Bond

*30 year Treasury Bond

Which rate is the highest? Which rate is the lowest? Why? How does this relate to the theory of the yield curve?

3) Locate the Comparable Treasuries on the upper right side of the picture. How does the 10 year US treasury rate compare with those of the European Central Bank and the Japan Central Bank? What is the one year rate and ten year rate for Europe and Japan? Why do you think these rates are different from the US?

Citrix Viewer View Devices 4/) 49% L Mon Nov 6 12:22:35 AM Q + E FACTSET.Q Learning Portal Today's Top News Markets Quotes Charting Economics Industry Company/Security Filings screening Portfolio Ownership United States Treasuries On the Run.. k comparable Treasuries -United StatesEuropeJapan 6M 03 May 18 100.008 OY 15Y 20Y Spreads 10 Year Mid Yld Mid Yd Chg Spread vs Uniled Spread Europe 10Y vs. United States 10Y United States Unted Kingdom 128.15111. 101.453/1. Jun 27101.8641 03 Aug China ofshore 1%) ple-A 160 170 100 100 200 210 5050 .. 51 51 61 59 26 21 71 DS Cha 005 008 005 000 004 003 005 008 006 009 6 Vid 7% 4% 6% 1. 222 39 98 8e 27 27 27 26 27 27 27 27-27 29 27 27 Oct Apr Hon Jan Jun Jun Mar Aug Jun 15 07 15 17 20 21 01 22 01 03 29 30 13 11 31 15 3 3 15 15 auuosul paid s_L3

Explanation / Answer

The graph is plot between yields of bonds of various maturities over one year. It shows how yields of different maturities have changed over the year.

The yield for now is denoted by blue lines and yield for a year ago is denoted by orange lines. 10Y yield as of now is a little less than 2.5% (looks like 2.4%) and 10Y yield a year ago was almost 1.9% (looks like 1.85%). The yield has increased over the last one year.

This means that the investors are very confident about investing in markets and have higher risk-appetite. They do not want to play it safe by investing in bonds and bond prices have dropped as a result of lack of demand. This drop in bond prices is what must have led to the increase in yield.

10 Y rate for Japan is 0.05%

10 Y rate for Europe is 0.4%

10 Y rate for US is 2.4%

1 Y rate for Japan is -0.1%

1 Y rate for Europe is -0.75%

1 Y rate for US is 1.5%

1Y rate is highest for US and lowest for Europe

10Y rate is highest for US and lowest for Japan.

With low treasury rates, even loan rates tend to fall. One would generally see lower treasury rates around recession time where the economy needs boosts. In such cases, businesses will borrow freely and generate income while others see no point in savings so they spend thereby increasing liquidity.

Both Japan and Europe are in a recession-like situation where they need to boost the economy and increase investor confidence. US, however, is in expansion mode with increased investor confidence so the bond prices are dropping and yields are higher.

You will notice that the yields for all of them are higher for higher maturities because investors need higher returns for keeping their money invested for longer periods.

The current mid-yield for 5 year term is 1.997%

The current mid-yield for 10 year term is 2.339%

The current mid-yield for 30 year term is 2.823%

The theory of yield curve states that if yields for shorter terms are lower than yields for longer term then the curve is said to be positive and is upward sloping. This bodes well for the economy and strong growth in the future can be expected.

The current mid-yield for 5 year term is 1.997%

The current mid-yield for 10 year term is 2.339%

The current mid-yield for 30 year term is 2.823%

The 5 year mid-yield is the lowest and 30 year mid-yield is the highest.

The longer the term of a bond, the riskier it is. The higher the rate should be to compensate for the risk.

The theory of yield curve states that if yields for shorter terms are lower than yields for longer term then the curve is said to be positive or normal yield curve and is upward sloping. This bodes well for the economy and strong growth in the future can be expected.

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