BUS614: International Finance

Learning Objectives

Describe different yield curves

Key Takeaways

Key Points

• In finance the yield curve is a curve showing several yields or interest rates across different contract lengths for a similar debt contract.
• Based on the shape of the yield curve, we have normal yield curves, steep yield curves, flat or humped yield curves, and inverted yield curves.
• There are three main economic theories that attempt to explain different term structures of interest rates, namely the expectation hypothesis, the liquidity premium theory, and the segmented market hypothesis.

Key Terms

• Treasury bond: A United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries. There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS), in which Treasury bonds have the longest maturity, from 20 years to 30 years.
• treasury bill: A United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government. They are often referred to simply as treasuries. There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS), in which Treasury bills have the shortest maturity of one year or less.
• yield curve: the graph of the relationship between the interest on a debt contract and the maturity of the contract