Go to wwwbondsonlinecom Click on Todays Market and then clic

Go to www.bondsonline.com.

Click on \"Today\'s Market\" and then click on \"Composite Bond Yields\" along the left-hand margin. Write down the yields under \"U.S. Treasury Bond Yields\" for three months through 30 years. Plot out the data.

Based on the expectations hypothesis, would you expect the future movement in interest rates to be up or down?

What is the yield on 10-year U.S. Treasuries? On the left side, click on “US Corporate Bond Spreads.” What is the yield on 10-year AAA rated corporate bonds? Compute the differences between the two to get the so-called \"spread.\" The normal spread between the two is 30 to 50 basis points, but it expands to 50 to 100 basis points when people become concerned about the economy (they want an increasingly higher yield to take a risk). Based on the number you just computed, what does it appear bond investors are telling us about their outlook for the economy?

Write a 1-2 page summary of your findings

Solution

Answer:

US Treasury Bonds

Maturity

Yield

Yesterday

Last Week

Last Month

3 Month

0.40

0.40

0.44

0.27

6 Month

0.56

0.58

0.54

0.40

2 Year

1.05

1.02

0.89

0.77

3 Year

1.34

1.30

1.14

0.94

5 Year

1.77

1.71

1.53

1.21

10 Year

2.34

2.28

2.13

1.72

30 Year

3.01

2.99

2.93

2.48

Yield on 10 year Treasury bond = 2.34%

Yield on 10 year corporate AAA bond = 2.95%

Spread = Yield on 10 year corporate AAA bond -    Yield on 10 year corporate AAA bond

            = 2.95% -2.34%

            = 0.61%

Since the spread is greater than 0.50% or 50 basis points, it shows that investors are more concerned about taking risk and they want a higher compensation for taking each unit of risk.

US Treasury Bonds
Maturity	Yield	Yesterday	Last Week	Last Month
3 Month	0.40	0.40	0.44	0.27
6 Month	0.56	0.58	0.54	0.40
2 Year	1.05	1.02	0.89	0.77
3 Year	1.34	1.30	1.14	0.94
5 Year	1.77	1.71	1.53	1.21
10 Year	2.34	2.28	2.13	1.72
30 Year	3.01	2.99	2.93	2.48