Plot the current yield curve from the interest rates of U.S. Treasury securities as found in WSJ or IBD, or examine the chart WSJ or IBD provides. Do not send the curve, but do describe and define it (Normal or Inverted).
- Describe the trend of interest rates over the last several years.
- Give me your best educated estimate of where interests are headed over the next year and justify your answer.
- Determine the approximate percentage appreciation or depreciation of the NASDAQ Composite, Dow Jones Industrial Average, and the S&P 500 for the last 12 months and provide these figures.
The current (12:43 PM EST 11/17/17) U.S 10 Year Treasury Note yield is 2.338%. With a 52-week yield range of 2.016% (low) to 2.641% (high). The current U.S. Treasury yield curve is “normal” (upward-sloping) although when compared with the yield curve from a year go (2016) the slope has flattened.
Interest rates from 2008 to 2017 have risen incrementally after falling in the midst of the 2007 financial crisis.
- Dec 16, 2008 U.S, Prime Rate: 3.25%
- Dec 17, 2015 U.S, Prime Rate: 3.75%
- Dec 15, 2016 U.S, Prime Rate: 4.00%
- March 16, 2016 U.S, Prime Rate: 4.00%
- June 15, 2017 U.S, Prime Rate: 4.25%
The current U.S. Prime rate remains at 4.25. On Dec 13, 2017 the FOMC will meet again, it is likely that interest rates will slightly increase.
Long-term rates follow the 10-year Treasury yield. We have already established that the 10-year Treasury Yield is “normal” (upward-sloping) so I would expect that interest rates will also rise.
In addition, the October 2017 jobs report showed the addition of 261,000 jobs, indicating an expanding economy. When the economy is strong demand for Treasuries falls, as this occurs prices on U.S. Treasuries fall while yield increases along with interest rates.
[google-drive-embed url=”https://docs.google.com/spreadsheets/d/1G7zmcmRq4ELRFCJuabFJMTSjHZeOnb2HsFnf1j1gv1k/preview?usp=drivesdk” title=”DOW-NASDQ-S&P_Analysis” icon=”https://drive-thirdparty.googleusercontent.com/16/type/application/vnd.google-apps.spreadsheet” width=”100%” height=”200″ style=”embed”]
Amadeo, K. (n.d.). Where Were the 261,000 Jobs Added in October? Retrieved November 17, 2017, from https://www.thebalance.com/jobs-report-monthly-employment-growth-statistics-3305732
Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management. Boston, MA: Cengage Learning.
Kenny, T. (n.d.). See How Economic Growth Changes Affect Bonds? Retrieved November 17, 2017, from https://www.thebalance.com/bonds-and-the-economy-417070
Kenny, T. (n.d.). Learn Why Bond Prices and Yields Move in Opposite Directions. Retrieved November 17, 2017, from https://www.thebalance.com/why-do-bond-prices-and-yields-move-in-opposite-directions-417082
Prime Rate History. (n.d.). Retrieved November 17, 2017, from http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm
U.S. 10 Year Treasury Note. (n.d.). Retrieved November 17, 2017, from http://quotes.wsj.com/bond/BX/TMUBMUSD10Y
What is the Prime Rate. (n.d.) Retrieve November 17, 2017, from https://www.moneycafe.com/personal-finance/prime-rate/
WSJ Graphics. (n.d.). Retrieved November 17, 2017, from http://www.wsj.com/graphics/yield-curve-explainer/
Week 4 Exam (#2): 100%