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Assignment – U.S.Treasury

U.S . Treasury

Week 5 assignment

Discussion

Go to BondsOnline.com, and from the menu at the left under Today’s Bond News, link to “Composite Bond Yields.”  BondsOnline.com provides a listing of “current” (today) and previous day yields for U.S. Treasury securities by varying maturities, yesterday’s closing yields, and the change from yesterday.  Also AAA rated Government Agency, Corporate, and Municipal bond yields (yesterday’s) are provided for varying maturities along with the spread (difference between the bond rate and yesterday’s Treasury rates).  The municipal bonds are quoted on both their actual yields and on a tax-equivalent basis (comparable fully taxable rate at the highest marginal tax rate in order to compare with corporate and agency securities).  A yield curve for each bond issuer group and a histogram of 30-year rates are also provided for each bond grouping. 

1.  What is the current shape of the U.S. Treasury yield curve?  What does this forecast indicate about the future direction of interest rates?  How do the yield curves of the other bonds (agency, corporate, and municipal) compare with the yield curve of U.S. Treasury securities? 

2.  What is the trend in spreads between U.S. Treasuries and corporate bonds (bottom figure)? What might explain the “widening” or “closing” of Treasury/Corporate bond spreads? 

SAMPLE ANSWER:

Corporate bonds are getting discounted at higher bond yields and the reason behind that is the risk premium that they command compare to US Treasury Bond Yields. Widening of spreads indicate that risk premium for Corporates is increasing while if it is closing it indicates investors are taking American Corporates bond in similar sentiments as US securities.

3.  What is the current trend in long-term Treasury bond yields (bottom figure under Treasury)?  What economic factors tend to influence long-term interest rates?

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