Now over to you to interrogate the yields to maturity (redemption yields) (over the periods for which you have data). You should choose the USA and ONE other country.You may wish to avail of the website:
in the above address, insert ** = us, uk, germany, australia, or japan ]
PART 1A: If you have yields to maturity for years 1, 2, 5, 10, 20, and 30 year bonds, for example, report the yield to maturity over these periods.
PART 1B: Now, using the APPROXIMATE method described in the tutorial above, calculate the discount rate, DR, that the market appears to consider appropriate over (i) for 1 year, (ii) averaged over 1 - 2 years, (iii) averaged over 3-5 years, (iv) averaged over 6 - 10 years, (v) averaged 11-20 years, and (vi) averaged over 21-30 years.
Avail of the internet (for example:
where /**/ above = /united-states/, etc.
IMF website: http://www.imf.org/external/pubs/ft/weo/2017/01/
to obtain the predicted rates of inflation over the periods for which you have predicted the discount rate, DR, that the market considers appropriate (in PART 1B). Use this rate together with the inflation rate to predict the real rates of interest over these periods. Use:
Compare your answers for the USA with the country of your choice.
Comment on your results for the USA and the rates that relate to TIPs (Treasury inflation protected bonds).
Comment on how the yields to maturity of Treasury bonds have changed since 3rd April 2017 as below. How does the market appear to have changed its predictions?
Treasury inflation protected securities
How does the "liquidity hypothesis" impact your interpretation? (namely, the idea that long term bonds are more sensitive to changes in interest rates going forward, and hence more risky, for which they require a "liquidity premium" - as much as an addition 1.5% on the YTM compared with a short-term Treasury bill, all else equal).
In the light of your findings, comment on the excerpt below from The Economist:
Buttonwood 4-10 March 2017.
If there is one aspect of the current era sure to obsess the financial historians of tomorrow, it is the unprecedented low level of interest rates. Never before have deposit rates or bond yields been so depressed in nominal terms, with some governments even able to borrow at negative rates. It is taking a long time for investors to adjust their assumptions accordingly.
Real interest rates (ie, allowing for inflation) are also low. As measured by inflation- linked bonds, they are around minus 1 % in big rich economies.
Comment on how you see the implications of your findings for the stock market.
Recently Asked Questions
- What is the pre-determined overhead rate of the Welding Department? What is the overhead applied during January for the Welding Department? What is the over or
- What conclusions can you draw about the heat of solution for the three salts tested and the effect on the temperature changes when the salts were dissolved in
- if someone has addison's disease, what causes hyperpigmentaion?