The US Government Bond Yield Curve
The yield curve is a sketch that economists use to expound on future forecasts and determine the economy’s health. It is a tool that provides guidance to investors to maximize their returns via conducting business with the government. The yield curves are also useful in indicating rates of interests that represents various bonds with their maturity interests.
Recently, the US bonds have depicted change especially in economic health. It is also clear that banks that deal with federal funds use yield curves to devise their monetary plans and value that comes with interest rates (Geiger 159). The purpose of this paper is to analyze on the bond yield curve by assessing its influence on interest rates and future short term rates.
Analyzing the November 2013 curve, it is clear that it was steepening heading at the right end. This was contributed by the long term bonds that led to higher rates of interests and low rates bonds that resulted to low rates in maturity. According to the yield curve, the economy was facing slow growth in economy. Despite this, it also raised the hopes for investors that in long term, the economy would improve. Based on the maturity rates during the long term, it is also clear from the curve that there will be increase in inflation.
In future, increase in rates of interest will reduce the purchasing power that will influence returns on the principle invested cash. It implies that the best investment approach to employ in future is use of short term bonds. According to the recent reports, the Federal Reserve intends to deduct on the quantitative measures. This will enhance positive outcome to the economy by ensuring that it reduces rates of interests and inflation.
Geiger, Felix. The Yield Curve and Financial Risk Premia: Implications for Monetary Policy. Stuttgart, Germany: Springer, 2011. Print.
Johnson, R. Stafford. Debt Markets and Analysis. New York, NY: John Wiley & Sons, 2013. Print.
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