In Finance
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Yield Curve In finance, the yield curve is the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency. For example, the current U.S. dollar interest rates paid on U.S. Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one following, which is informally called "the yield curve." More formal mathematical descriptions of this relation are often called the term structure of interest rates.
US Treasury April 27, 2009
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
0.10
0.29
0.96
1.94
2.99
3.88
Diagram # 1 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per April 27, 2009. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
December 29, 2008
0.06
0.22
0.88
1.51
2.13
2.61
Diagram # 2
3 2.5 2 1.5
Series1
1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per December 29, 2008. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
June 30, 2008
1.65
2.12
2.63
3.35
3.97
4.52
Diagram # 3
5 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per June 30, 2008. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is more then 1.5% which is quite high as compare with the above two diagrams but it still have up ward trend which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
December 31, 2007
3.14
3.42
3.11
3.50
4.08
4.50
Diagram # 4 5 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per December 31, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is more then 3% which is quite high as compare with the above three diagrams but it still have up ward trend but for mid term investment like 2 years came down and then if goes up ward for the long term investment, which is favorable for economy of any country.
US Treasury July 2, 2007
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
4.80
4.93
4.87
4.93
5.03
5.12
Diagram # 5
5.2 5.1 5 4.9
Series1
4.8 4.7 4.6 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per July 02, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is 4.5% which is quite high as compare with the above four diagrams but it still have up ward trend but for mid term investment like 2 years came down to 4.87 from 4.93 and then if goes up ward for the long term investment, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
January 1, 2007
5.01
5.08
4.81
4.69
4.70
4.81
Diagram # 6
5.2 5.1 5 4.9 4.8
Series1
4.7 4.6 4.5 4.4 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per July 02, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend for very short period of three months, we can clearly see that even for short term investment like 3 months interest rate is 5.01% which is very high as compare with the above diagrams, after 6 months curve have down wards trend and at the end for long term investment the interest rate goes higher but still it is very low as compare to the three or six months investment, which is unfavorable for economy of any country.
Conclusion: After analyzing the above data and diagrams we concluded that in the first three diagrams (which shows the data from June 30, 2008 to April 27, 2009) curve always have up wards trend which shows that interest rate for long term investment is getting higher as investment period increases. In diagram # 4 & 5 the interest rate for short term investment is very high from the start then for the mid term investment interest rate decreases and then for long term investment it has increasing trend. In the last diagram initial interest rate is very high then it start decreasing and at the end for long term investment it increases but still it is not higher then initial interest rate which is highly unfavorable for any economy. So, we concluded that first two diagrams are highly favorable for economy and the last diagram is highly unfavorable for economy.
Reference: www.yieldcurve.com www.bloomberg.com www.Newyorkfed.org
US Treasury April 27, 2009
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
0.10
0.29
0.96
1.94
2.99
3.88
Diagram # 1 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per April 27, 2009. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
December 29, 2008
0.06
0.22
0.88
1.51
2.13
2.61
Diagram # 2
3 2.5 2 1.5
Series1
1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per December 29, 2008. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
June 30, 2008
1.65
2.12
2.63
3.35
3.97
4.52
Diagram # 3
5 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per June 30, 2008. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is more then 1.5% which is quite high as compare with the above two diagrams but it still have up ward trend which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
December 31, 2007
3.14
3.42
3.11
3.50
4.08
4.50
Diagram # 4 5 4.5 4 3.5 3 2.5
Series1
2 1.5 1 0.5 0 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per December 31, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is more then 3% which is quite high as compare with the above three diagrams but it still have up ward trend but for mid term investment like 2 years came down and then if goes up ward for the long term investment, which is favorable for economy of any country.
US Treasury July 2, 2007
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
4.80
4.93
4.87
4.93
5.03
5.12
Diagram # 5
5.2 5.1 5 4.9
Series1
4.8 4.7 4.6 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per July 02, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend which is showing that the interest rate for the short period is low and investor is getting high interest rate for long term investments, we can clearly see that even for short term investment like 3 months interest rate is 4.5% which is quite high as compare with the above four diagrams but it still have up ward trend but for mid term investment like 2 years came down to 4.87 from 4.93 and then if goes up ward for the long term investment, which is favorable for economy of any country.
US Treasury
3 Month
6 Month
2 Year
5 Year
10 Year
30 Year
January 1, 2007
5.01
5.08
4.81
4.69
4.70
4.81
Diagram # 6
5.2 5.1 5 4.9 4.8
Series1
4.7 4.6 4.5 4.4 3 Month 6 Month
2 Year
5 Year
10 Year 30 Year
Explanation: In the above diagram we have the yield curve of USA as per July 02, 2007. We have different periods (years) on X-axes and interest rates on y-axes, with the help of above data we potted the diagram of yield curve. The curve have up ward trend for very short period of three months, we can clearly see that even for short term investment like 3 months interest rate is 5.01% which is very high as compare with the above diagrams, after 6 months curve have down wards trend and at the end for long term investment the interest rate goes higher but still it is very low as compare to the three or six months investment, which is unfavorable for economy of any country.
Conclusion: After analyzing the above data and diagrams we concluded that in the first three diagrams (which shows the data from June 30, 2008 to April 27, 2009) curve always have up wards trend which shows that interest rate for long term investment is getting higher as investment period increases. In diagram # 4 & 5 the interest rate for short term investment is very high from the start then for the mid term investment interest rate decreases and then for long term investment it has increasing trend. In the last diagram initial interest rate is very high then it start decreasing and at the end for long term investment it increases but still it is not higher then initial interest rate which is highly unfavorable for any economy. So, we concluded that first two diagrams are highly favorable for economy and the last diagram is highly unfavorable for economy.
Reference: www.yieldcurve.com www.bloomberg.com www.Newyorkfed.org
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