Yield Curve (Finance)

Meaning of Yield Curve in Finance

In finance, yield curve means graphical  presentation of the relationship of maturity period and interest rate of debt. This yield curve is also called treasury yield curve. When Government or bank takes loan from public, it is called treasury debt. Government fixes its cost of debt that is called interest. This interest is fixed according to the maturity time period of treasury debt. Long term treasury debt will receive high rate of interest but low period debt will receive low rate of interest. Because government treasury debt is risk free. So, rate of interest will increase by diminishing marginal in long period.

Yield Curve Graph

Following is yield curve graph

Yield Curve Analysis

Analysis of anything will be helpful us to get result. Following points may write on the basis of analysis of yield curve

a) Typical Upward Sloping Shape

Main reason of this, it is risk free investment of people. Interest rate will increase with slow rate because more people are interested to invest in treasury because all these investor wants to less earning but it should be totally risk free.

b) To Calculate the Value of Bond 

In yield curve analysis, we analyze the rate of interest on the basis of its maturity. It will be helpful to calculate the value of Bond. Let me explain this with a simple example. Suppose A is the Kisan Vikas Pater ( Indian Govt. Bond). Suppose, Mr. has bought Kisan Vikas Pater of Rs. 1000 in previous year 2010 for 10 years. Suppose, 10% rate of interest applies on it and this amount will be doubled. Now, if A wants to sell it in 2015 to B, B will see its yield curve, for 5 years, govt. is getting debt just giving 5% interest. Now, B is ready to pay to A Rs. 1500. Because both A and B will be in profit. A's bond price will increase and B will get more interest than 5%.

c) Comparison of yields of Different Entities

We can compare the yield of govt. bond and private bond on the basis of yield curves of both entities. On this comparison, we check which is providing better return? In private entity, we also analyze their credit rating. If it is good, we can move our investment in private sector also.

d) Analysis of Risk and Return

Yield curve analysis is also helpful for analysis of risk and return of our investment in debt. We want to find that time which is optimum for getting optimum return at minimum risk.

e) To Study Business Cycle

As economist, you can analyze yield curve for studying business cycle. At that time, we classify government taken loan in T-bills, treasury notes and treasury bonds. T-bills are issued for 3 months, treasury notes are issued for 2 to 3 years and treasury bonds are issued for 10 to 20 years. Future economic growth, inflation, and recessions are the main business cycle and these are affected with yield curve. Yield curve position will affect commercial banks. They can tight the funds or more flow of funds at minimum conditions. Result may come to use in the form of credit strength or credit crisis. 


Comments on this Website
Share above Content to Your Friends


access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
Accounting Education: Yield Curve (Finance)
Yield Curve (Finance)
Accounting Education
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock