Question
Q5: In class we discussed the Term Structure of Interest Rates, expressed graphically in what is known as the Yield Curve. Normally the X axis
Q5: In class we discussed the Term Structure of Interest Rates, expressed graphically in what is known as the Yield Curve. Normally the X axis of the Yield Curve is the Term to Maturity (TTM) of the bond, while the required return (Yield) is measured on the Y axis. The Yield Curve itself is usually exclusively determined by Treasury issues. The general shape of the Yield Curve is not always the same, it changes from one point in time to another. This semester, Campbell prepared a table defining the Yield Curve as it was at four points in history: 2006, 2009, Sep 18, and Oct 18. The Yield Curve for 2009 reflected dramatic changes from that of 2006. Rates were lower in 2009 at all Terms to Maturity (TTMs), a change commonly considered to be primarily the result of Federal Reserve (Fed) Monetary Policy. However, the effect of Fed policy was powerful and dramatic in one segment of the debt market, while it was very weak in the other. In which segment of the market was Fed policy far greater, was it in the short TTM segment, or the long TTM segment?
Q6: In class we discussed the Term Structure of Interest Rates, expressed graphically in what is known as the Yield Curve. Normally the X axis of the Yield Curve is the Term to Maturity (TTM) of the bond, while the required return (Yield) is measured on the Y axis. The Yield Curve itself is usually exclusively determined by Treasury issues. The general shape of the Yield Curve is not always the same, it changes from one point in time to another. This semester, Campbell prepared a table defining the Yield Curve as it was at four points in history: 2006, 2009, Sep 18, and Oct 18. A comparison of the Sep 18 curve and the Oct 18 curve allows us to detect current rate trends across the spectrum of maturities. In this case, what does this comparison evidence regarding current rate trends, does it evidence rising rates, declining rates, or unchanged rates? Is this result consistent across different TTMs?
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