Treasury yield curve, Financial Management

Treasury securities are government bonds issued by the US Treasury Department. These are issued through the Bureau of the Public Debt. They are debt-financing instruments of the US Federal government. These securities are of four types - Treasury Bills, Treasury Bonds, Treasury Notes and Savings Bonds. All these securities, except savings bonds are highly liquid and heavily traded in the secondary stock markets.

In treasury securities, there exist on-the-run treasury securities and off-the-run treasury securities. The on-the-run treasury securities are the most recently issued US Treasury bonds and notes. Normally, stockbrokers acquire these securities in large quantities and sell them to retail investors. These securities are highly liquid and are traded at higher prices when compared to that of off-the-run treasury securities. Off-the-run treasury securities are those treasury securities, which are issued, in earlier auctions.

These securities are fixed income instruments and are free from credit risk. These securities provide low yield when compared to that of non-treasury securities. This is due to their favorable tax treatment, high liquidity, being free from credit risk, and being non-callable securities.

The relationship between the yields offered on the treasury securities for each maturity when represented graphically is refereed to as treasury yield curve. A yield curve may be an upward sloping yield curve (longer the maturity, higher the yield), inverted yield curve (longer the maturity, lower the yield), or a flat yield curve (same yield regardless of maturity).

Figure 1: US Treasury Yield Curve

 

1523_us treasury yield curv.png

Table 1

Maturity

Yield on 03.07.2007

Yield on 02.07.2007

3 Month

4.71

4.65

6 Month

4.74

4.71

2 Year

4.83

4.85

3 Year

4.83

4.87

5 Year

4.87

4.91

10 Year

4.97

5.01

30 Year

5.07

5.10

 From the above two exhibits, it is clear that the longer the maturity, the higher will be the yield. Due to this feature, treasury yield curve is also known as the 'upward sloping yield curve' or the 'normal yield curve'.

Posted Date: 9/10/2012 3:08:33 AM | Location : United States







Related Discussions:- Treasury yield curve, Assignment Help, Ask Question on Treasury yield curve, Get Answer, Expert's Help, Treasury yield curve Discussions

Write discussion on Treasury yield curve
Your posts are moderated
Related Questions
Factors Affecting cost of capital are elements in the business environment that cause a company cost of capital to be high and low. Figure below illustrative the various primary fa

For this assessment, you will be required to select a role within the financial services industry that interests you. Undertake your own research to find out about the role you hav

In the efficient markets, whether it is security, equity or fixed-income markets it is believed that the investors use some type of passive strategy in

A company has the opportunity to sell an old machine. The machine is fully depreciated to a zero book value but could be sold for $5,000. If the company did not sell the machine, i

Principles of Good Regulation While performing its functions, the FSA needs to take into account certain matters which are termed the ‘principles of good regulation'. The matte

As the CEO of PG Industries, you are hired at the pleasure of the Board of Directors, who in turn are elected by the shareholders. You are considering Project A which you are convi

PRC Company, a retailer of baby clothes and toys, has been in existence for 20 years. Its approach to strategy has tended to be informal and emergent rather than planned. However,

Q. Yield curve - influence the rate of interest? The normal yield curve demonstrates that the yield required on debt increases in line with the term to maturity. One reason for

It is a policy feature of permanent life insurance that permits policyholders to left any dividends obtained with the insurer, where the dividends can gain interest. Accumulation o

what is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million,if the average interest rate on debt is 8.5% and the marginal tax rate i