The subsequent figures show the evolution of the spread between the 10-Year TreasuryConstant Maturity and the 2-Year Treasury Constant Maturity. Apparently this spread turnsnegative before a recession (Figure 1). As becomes apparent the spread become negativeduring the year 2019 again (Figure 2).FRED- 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity302520131010200020022004200020102012Snaded areas indicate U.S. recessionsSource: Federal Reserve Bank of St. Louisred.stiouisfed.orgFigure 1: 10-Year Treasury Constant Maturity minus the 2-Year Treasury ConstantMaturity for the time period 2000-2012Percent FRED - 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity30201510102015-012015-072016-012010-072017-01 2017-072013-01201807 2019-01201907Shaded areas indicate US. recessionsSource Federal Reserve Bank of St. Louisfred. stiouisfed.orgFigure 2: 10-Year Treasury Constant Maturity minus the 2-Year Treasury ConstantMaturity for the time period 01/2015-09/2019Having considered the scenario above complete the following tasks:a) What does this negative spread imply for the yield curve? Give reasons fora negative spread ahead of a recession (-b) Some economists argue that the yield curve and the signals it sends outhave been distorted by central banks' interventions in the aftermath of thefinancial crisis. Analyse this statement critically (r-Percent

The Federal Reserve Board creates an index based on the average yield of numerous treasury…

Answered: Consta negati during FRE

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Consta negati during FRE

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 23P

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Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

The subsequent figures show the evolution of the spread between the 10-Year Treasury
Constant Maturity and the 2-Year Treasury Constant Maturity. Apparently this spread turns
negative before a recession (Figure 1). As becomes apparent the spread become negative
during the year 2019 again (Figure 2).
FRED- 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
30
25
20
13
10
10
2000
2002
2004
2000
2010
2012
Snaded areas indicate U.S. recessions
Source: Federal Reserve Bank of St. Louis
red.stiouisfed.org
Figure 1: 10-Year Treasury Constant Maturity minus the 2-Year Treasury Constant
Maturity for the time period 2000-2012
Percent

FRED - 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity
30
20
15
10
10
2015-01
2015-07
2016-01
2010-07
2017-01 2017-07
2013-01
201807 2019-01
201907
Shaded areas indicate US. recessions
Source Federal Reserve Bank of St. Louis
fred. stiouisfed.org
Figure 2: 10-Year Treasury Constant Maturity minus the 2-Year Treasury Constant
Maturity for the time period 01/2015-09/2019
Having considered the scenario above complete the following tasks:
a) What does this negative spread imply for the yield curve? Give reasons for
a negative spread ahead of a recession (-
b) Some economists argue that the yield curve and the signals it sends out
have been distorted by central banks' interventions in the aftermath of the
financial crisis. Analyse this statement critically (r-
Percent

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