Relationship between the Change in Shapes in Yield Curves and Changes in Economic Prospect of an Economy

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Letter of Transmittal

Introduction

This assignment is to study the relationship between the change in shapes of yield curves and change in economic prospect of an economy. In this study, Australia and America are selected for the detailed analysis of the topic. Time series data from December 2009, December 2010, December 2011, December 2012 and the most updated May 2013 will be collected for further analysis.

The study will be divided into 4 parts. Below we will explain briefly how we will handle the tasks.

Task 1:
We will plot the yield curves of Australia and America using the yield data of Australian Treasury notes and government bonds as well as the U.S. Treasury bills. Then, we will relate the curve shapes to expectation theory of the interest rates for further explanations.

Task 2:
We will discuss the relationship between the change in the slope of yield curves and the change in the prospect of economy by plotting the graphs of slop change in yield curves for Australia and America. Data with a higher frequency will be collected for more detailed study.

Task 3:
We will look in to how effective the RBA and the FED have done on the change in monetary policy and how these policies affected the yield curves respectively. Actions taken to deal with the impact from financial tsunami in 2008 will be target of our discussion.

Task 4:
We will conclude the findings above and try to give out opinions on how the investors and policy makers should do to achieve a better

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