Question 3

a) The following is from an article in the Wall Street Journal (22/2/2008) describing events in the market for treasury securities (Treasuries) that day: Treasuries prices were mixed, with the shorter end of the curve rising and longer-dated Treasuries falling in price. On the same graph, sketch two Treasury yield curves, one showing the situation on that day (as described in the sentence) and one showing the situation on the day before. Label one curve today and the other curve previous day. Be sure to label both axes of your yield curve graph. Compare the two yield curves.

(This is all the information I received to solve this question)

b) Interest rates on U.S. Treasury bills are typically much lower than interest rates on U.S. Treasury notes and bonds. If the federal government wants to reduce the interest charges it pays when it borrows money, why doesnt the Treasury stop selling Treasury notes and bonds and sell only bills? (use a term structure theory)