yield curve. final
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YIELD CURVE ANALYSIS
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EFINATION & INTRODUCTION:
A yield curve is a line that plots the interest rates, at a set point in
time, of bonds having equal credit quality, but differing maturity
dates.
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TYPES OF YIELD CURVES:
Flat Yield Curve
Inverted Yield Curve
Normal Yield Curve
Realized Yield curve
Treasury yield curve
Libor Yield Curve
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.Flat Yield Curve:
yield curve in which there is little difference between short-term and long-term
ates for bonds of the same credit quality. This type of yield curve is often seen during
ransitions between normal and inverted curves.
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n interest rate environment in which long-term debt instruments have a lower yield
an short-term debt instruments of the same credit quality. This type of yield curve is
e rarest of the three main curve types and is considered to be a predictor of
conomic recession.
.Inverted Yield Curve:
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3.Normal Yield Curve:yield curve in which short-term debt instruments have a lower yield than long-term
ebt instruments of the same credit quality. This gives the yield curve an upward slope.
his is the most often seen yield curve shape. Sometimes referred to as "positive yield
rve".
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.Realized Yield curve:
he actual amount of return earned on a security investment over a period of time.
his period of time is typically the holding period which may differ from the expected
ield at maturity. The realized yield also includes the returns that have been earned
rom reinvested interest, dividends and other cash distributions.
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5.Treasury yield curve:
graphical representation of the relationship between the differentaturities of Treasury securities and their yield to maturity
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.Libor Yield Curve:
he LIBOR yield curve plots interest rates for a range of maturities (from overnight tone year). LIBOR yield curve is typically a little higher than government curves and is
idely used in the financial markets.
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OTHER CONSTITUENTS:
Curve Steepener Trade
Yield Elbow
Yield Curve Risk
The Term Structure of Interest Rates and
the Yield Curve
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2.Yield Elbow :
The point on the yield curve indicating the year in which the
economy's highest interest rates occur.
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3.Yield Curve Risk:
he risk of experiencing an adverse shift in market interest ratesssociated with investing in a fixed income instrument. The risk is
ssociated with either a flattening or steepening of the yield curve,
hich is a result of changing yields among comparable bonds
ith different maturities
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.The Term Structure of Interest Rates
nd the Yield Curvehe term structure of interest rates refers to the graph of STRIP yields versus the
aturity of the STRIPS; sometimes this also referred to as the spot yield curve and
TRIPS rates are referred to as spot rates.
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What does yield curve predict?Yield curve predictions about future growth come in two general
flavors. One tries to predict the rate of growth that can be expected at
some point in the future, the other tries to predict the probability of a
recession occurring. It predicts about the economic indicators like GDP
growth, recession and inflation.
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1.Predictions on GDP:
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2.Predictions on recession:
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3.Predictions on inflation:
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Aadhish Pathare- 216Gavin Lobo- 213
Sanat Verma- 226
Ketan Makwana- 228
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