Yield curve shift, Financial Management

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

Posted Date: 9/10/2012 3:24:18 AM | Location : United States







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

Write discussion on Yield curve shift
Your posts are moderated
Related Questions
Let us consider three scenarios of changes in stock prices and look into the risk return profile of the convertible security. Let us assume that the stock prices

Illustrate the term quality of benefits It is clear from Table that total returns associated with two alternatives are identical in a normal situation but range of variati

#The following items are found in the The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000.

Q. What do you signify by Cost of Capital? What do you signify by 'Cost of Capital'? What is its meaning and what are the problems in determination of cost of capital? Ans.

Q. Describe about Self-Employment Tax? Self-Employment Tax - Most individuals who are in business for themselves, like PARTNERS, SOLE PROPRIETORS or independent contractor ar

Q. Problems in computations of cost of retaining earning? Problems in computations of cost of retaining earning: it is sometimes argued that retained earning do not involve any

XYZ company produces three products X,Y and Z. for the coming accounting period budgets are to be prepared based on following information. Budgeted Sales Product X       2,00

WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT LITERATURE

6 KEY STAGES OF INVESTMENT DECISION WITH APPROPRIATE DIAGRAM

"A" Round Financing "A" Round Financing is the first main round of business financing through private equity investors or venture capitalists. In private equity investing, an "