1. Business
  2. Economics
  3. a the following graph depicts the slope of the yield...

Question: a the following graph depicts the slope of the yield...

Question details

a) The following graph depicts the slope of the yield curve for the US (the difference in yields of 10 years and 2 years bonds). Explain what market expectations regarding future short term nominal interest rates as revealed by this curve (especially when compared against the last 3-4 years). Provide a discussion of relevant theories in support of your explanations. [5096] The Mysteriously Flattening Yield Curve Spread of 10-year over 2-year Treasury yields 300 250 200 150 100 50 2007 09 13 15 17 Source: Bloomberg O FT b) Given that the graph above shows an almost flat yield curve (slope close to zero), what lessons can we draw for future expected inflation and economic growth in the US? [2096] Explain your answers. c) Assume a central bank sells a part of its foreign reserves. What impact on domestic interest rates would this measure have? Describe what the bank could do to neutralise the impact of this transaction on interest rates.

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution