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Advice on Treasury Bond Yield Curve

Find more information about Treasury Bond Yield Curve at the best oniine resource site Teen Analyst.

Q: hello please can some one tell me why the yield for municipal bonds are lower than treasury bonds in the U.S?
The U.S treasury bonds has a lower yield period than the Municipal bonds why is this so? For more details go to Yahoo finance for the U.S treasury yield curve.

A: Muni bonds have a lower yield because the interest earned does not get taxed. It may not be taxable at the state level if the bond is issued from the state you live in. New York and California are two states with high state tax rates where their bonds make a big difference.

So in order to compare the 2 bonds, you need to take the taxes out of the Treasury bond and compare the percentages.

5% Treasury = 5% x (100% – 28%) = 3.64%. ( Assume the Fed rate is 28%. If the state tax rate can be included, add it to the 28%) If the muni bond has a higher % than 3.64%, then buy the muni bond.

Q: A bond trader observes the following information:?
The Treasury yield curve is downward sloping
Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds
Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields

On the basis of this information, which of the following statements is most CORRECT?

a. A 10 year corporate bond must have a higher yield than a 5 year Treasury bond.
b. A 10 year Treasury bond must have a higher yield than a 10 year corporate bond.
c. A 5 year corporate bond must have a higher yield than a 10 year Treasury bond.
d. The corporate yield curve must be flat.
e. Since the treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping.

A: C

Q: Can someone describe the shape of the yield curve from 91 day t-bill to 20 yr U.S. treasury Bonds?
A website would be great. I had trouble finding anything on it.

A: It changes every day as demand fluctuates. You can find the raw data for the current yields as published by the US Treasury at:

http://www.treasury.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

Hope that helps.

Q: I need help with another finance I question. please help!?
If the Treasury yield curve is downward sloping, how would the yield maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-Bill?
(a) The yield on a 10-year bond would be less than that on a 1-year bill.
(b)The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium.
(c) It is impossible to tell without knowing the coupon rates of the bonds.
(d)The yields on the two securities would be equal.
(e) It is impossible to tell without knowing the relative risks of the two securities.

A: If the yield curve is downsloping, that means the interest rates on longer term securities are lower than short term securities.

The answer is A.

Q: Maturity risk premium???!!!!?
Which of the following statements is CORRECT?
If the maturity risk premium (MRP) is greater than zero, the yield curve must be upward sloping.
If the maturity risk premium (MRP) equals zero, the yield curve must be flat.
If inflation is expected to increase in the future and the maturity risk premium (MRP) is greater than zero, the yield curve will be upward sloping.
If the expectations theory holds, the yield curve will never be downward sloping.
Because long-term bonds are riskier than short-term bonds, yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds.

A: Theoretically correct position is : Because long-term bonds are riskier than short-term bonds, yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds. But sometimes in real life, yield curves may be inverted or flat and higher maturity may not lead to higher risk premia. If the maturity risk premium (MRP) equals zero, the yield curve must be flat, provided there are no other effects like inflation risk premium.
It may be also true that “If inflation is expected to increase in the future and the maturity risk premium (MRP) is greater than zero, the yield curve will be upward sloping’.
It seems you are trying to find out the most incorrect statement . .

Note: The term structure of risk: risk varies with the maturity of a security
• Maturity risk premium: The longer the maturity of an asset, the
greater will be the effect on price of a given change in interest
rates. Long-term maturities are riskier than short-term maturities.
Hence the term maturity risk premium
• Inflation premium also has a term structure dimension. It will
likely vary with the maturity of an asset.
• At times, it will be higher for long- compared with short-term
securities.
• Other times, it will vary positively with maturity
• Inflation risk premium
• Analysis is in the developmental stage
• Logic suggests that there ought to be a term structure to the
inflation risk premium and it should be positive
• Maturity risk premiums
• Rise as economic condition deteriorate and vice versa
• Fall as financial confidence improves and vice versa
• Inflation premiums
• The term structure of the inflation premium will vary with
economic conditions
• Accelerating inflation will likely be associated with a
steepening of the term structure of the inflation premium
• Inflation risk premium
• The term structure of the inflation risk premium will also be
affected by developments in inflation, the credibility of
monetary policy and financial confidence

Q: There are several forecasts (by Peter Schiff, for ex) suggesting that the dollar and bond market will crash..?
Assuming this were to occur, how exactly do you suspect it will pan out?

How can you reconcile this prediction with the phenomenon of deflation (were it to occur)?

In theory, can their be deflation of asset prices en masse, whilst the dollar incurs the discount effect of inflation?- so a simultaneous inflation and deflation, so to say? (If this sounds inconsistent, It’s because I have completed a very limited amount of studying in economic theory– so I can only surmise for now)

Moreover, in which “vehicle” or operational arrangement (like going short) could one vest their cash as the lesser of all (or most) evils? Short treasury’s? The yield-curve steepener (mentioned by Julian Robertson)?

Would be highly appreciative of your insights.
Cheers

A: To a certain degree, these two markets (dollar and bonds) are related.

I believe that the dollar is over-valued. The reason is simple, the US economy hasn’t purged its excesses of the last decade. The US consumer is highly leveraged, consumption outstripped production but since the US$ was the reserve currency across the world, it didn’t matter. Instead of having a decline in the value of the US$ so as to bring the balance of payments into equilibrium, the US government sold assets by printing bonds. Since the US$ was the reserve currency, foreign countries bought up these bonds and allowed the US to live on credit.

However, we have seen the emergence of the Euro as a serious compreserve currency. The EU Block conducts a huge volume of trade, and it makes sense for foreign economies, say India, China to keep Euros too. As the US$ loses its place as sole reserve currency, so does the ability of the government to print money (bonds) at no cost.

Hence the demand for US$ denominated bonds will slow. Add to this a devaluation of the US$, and the returns from these bonds will be even worse in local currency terms, and the bonds even less valued.

Now how that plays with delfation is also quite straightforward. As the US economy is trying to purge, demand in the US will fall. (The fall in dollar making it a double whammy). Thus as demand falls, local US made products will see over supply and prices will fall. However, the effect on imported products will depend on whether the decline in the value of US$ (making imports more expensive) will counter the demand decline (making prices fall); but since most of trade with the US is done in US$, it is likely that the decline in demand will lead to deflation. Hence you have deflation and devaluation at the same time.

If you want to trade now, I’d ask you to wait a bit, and simply buy stocks around february or so, once the festive seasons (in the west as well as the east) plus the investiture of Obama are over, there should be a bit more stability and bargains to be made. In short, keep cash, pick your stocks in February and sit for the medium to long term.

Q: What will happen to Treasuries if rates get raised?
If they raise short term rates… like Treasuries in the short term, what will happen to 10-yr and 30-yr bonds? Will the yield curve begin to invert? If i got any terminology wrong let me know, I just graduated, so I don’t know too much about this stuff yet. thanks for any input.

A: You can’t say for sure. Longer term bonds are sensitive to assumptions about future inflation. To the extent that a rise in short term rates is due to contraction of the money supply, it would cause longer rates to fall.

Q: Can someone check my answer? Which curve is this?
The ________ curve depicts the relation between interest rates on fixed-income instruments issued by the U.S. Treasury and the maturity of the instrument.

a. long-term
b. short-term
c. yield
d. exchange rate

I said C),

but I wasn’t sure because it was worded a bit differently than what I knew to be true: The graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

Thanks for your help!

A: Yes ur answer is ryt!! yield curve shows the relationship between risk free interest and maturity!! and risk free interest rate is the rate provided on fixed income instruments issued by the us treasury

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