Question

What does the current Treasury Yield Curve look like today?

What does this say about the expectation of interest rates in the future? What does it say about inflation?

How does it compare to the yield curve a month ago? A year ago?

Now look at the yield curve from November 20, 2006. What was this curve predicting?

Answer 1

As presented in the above Fig. current Treasury Curve is Normal Yield Curve as the short term yield is lower than then long term yield.

Current Treasure curve predict that in future the interest rate is going to rise for bond. Interest rate is given by the government is directly proportionate to Inflation which means that Inflation is going to raise in long term and government will be in expansionary policy as they are intended to spend more in the long term.    If I compare a current yield curve (14/01/2019) with last month Yield Curve (14/12/2018), the trend of the Yield curve is same i.e Normal Yield Curve but as we can see in the above Fig. expected rates was higher in last month compare to this month which means that the expectation on Interest rate have been cut.

If I compare a current yield curve (14/01/2019) with last Year Yield Curve (12/01/2018), the trend of the Yield curve is same i.e Normal Yield Curve but as we can see in the above Fig. that for current year expected yield is higher as compare to the last year which means that we are expecting inflation will increase more as compare to the last year prediction

We can see that the Shape of the Yield Curve of 20/11/2006 was Inverted Yield curve this type of yield curve is formed when short term yield is higher than then the long term yield which means that in the long run Inflation is expected to come down and we can also say that the Govt. is in Contractionary Policy