Fin Paper 3
6
FINC 335 PROJECT DESCRIPTION STAGES 1
Part 1: Forecast of Economic Trends and Interest Rates
Part 2: Treasury Yield Curves
Part 3: Reflection
Name:
Professor Name:
Course Name: FINC
Submission Date: November 16, 2021
INTRODUCTION
News Articles
1. Economics Growth
https://www.usnews.com/topics/subjects/economic_growth
2. Business News Economy (CNBC)
3. The New Yolk Times -
https://www.nytimes.com/2021/06/03/business/economy/us-economic-recovery.html
4. Deloitte Insights – United States Economic Forecast 2021
Forecast of Economic Trends
Economics and is important for the development of financial reporting usually and in dissemination of information. Same as noted above, growth & development of economy, and structural & social change. Structural & social change, rather than the requirement for financial as well as for reporting entities, is with it for the measurement of the overall performance of each sector of the economy in terms of its effectiveness, efficiency, and productivity. As a declared, basically, development is a process of evolution dependent on that process of development of economy and mixed with it. In addition, in Switzerland and discuss "the social function of financial accounting is used to measure and transmit data, economic data, and not to think about what a valuable tool to promote development (Adams et al., 1997).
But development of economy can be achieved through different strategies, depending on the nature of the economic system, which is different from the level and growth of income, as well as to the government, which should support and interference, and the export level. Each of these factors can be reflected in financial management (Adams et al., 1997).
Forecast of Short-Term & Long-Term Interest Rates
The accounting role and development of economy is considered from different perspectives. For example, when it comes to capital as a matter of course, it was emphasized that the use of internal savings and financial reporting. For discussion of the development of taxation, finance, and accounting, it is considered as a key factor in the success of personal income tax. But at least the accountant and accounting researchers discussed this issue, they probably did play a big role in financial reporting in developing countries. Governments look at this unit to determine tax, currency, and other foreign and domestic economic policies. All such information has a common denominator: the point is that as far as such information can be, it is most accurate to meet the economic needs of the country(Frey, 2008). Corporate reporting & your declaration of significant information in the financial sector have its essential role of trust, creating & in protecting individuals, mostly investor’s interests & modeling the development of the capital market. As a modem, add it to your account system. It will help in enhancing productivity, efficiency, & economic growth. This type of assessments is important for operational as well as for planning purposes, i.e., to ensure the true role of modern management accounting (Mares, 2013).
The reviews about forecasting of economic trends and short-term and long-term interest rates in United States are different in different researcher’s point of views. If there is no transaction cost to interest on short term interest rates. The long-term interest rate yield curve and the short term interest rate average is mostly same at the expected future short time interest rates it ''effects the long term interest rates this is known as expectations theory of the term structure of interest rates". Here the investor must follow the advice of the fore casters to forecast the invest rate. Basing on their knowledge the forecaster will give the value at a one quarter this will be very near to the actual interest rates rate if the fore caster may provide a value at 4 quarter that may be accurate as like a one quarter but not too bad at.
Treasury Yield Curve
It is looking like upward slopping curve. It means that economy is growing and doing well, and investors are confident of bright future. It says that interest rates are going to increase in future as investors expects higher yield on long-term bonds, since there is risk money being held here. It seems they inflation is also going to increase along with yield. The yield curve slope decreased compared to last month means lesser yield when compared with month ago. In recent years, the short-term maturity yield is less and for long term maturity the yield is high, it means higher risk than current year. In recent years, both the short term and long term the yield are very high than the present date. Treasury curve is also flat as compared to present which is upward sloping. This curve predicting the economy is expecting not doing well (Christensen, 2018).
Table 1: Interest Rates data for U.S. Treasury Yield Curve
|
Date |
1 Mo |
2 Mo |
3 Mo |
6 Mo |
1 Yr |
2 Yr |
3 Yr |
5 Yr |
7 Yr |
10 Yr |
20 Yr |
30 Yr |
|
12/30/1992 |
N/A |
N/A |
3.19 |
3.39 |
3.57 |
4.54 |
5.07 |
5.98 |
6.39 |
6.68 |
N/A |
7.39 |
|
2/12/2008 |
2.55 |
N/A |
2.31 |
2.12 |
2.06 |
1.94 |
2.13 |
2.71 |
3.13 |
3.66 |
4.43 |
4.46 |
|
3/26/2019 |
2.46 |
2.44 |
2.46 |
2.49 |
2.44 |
2.24 |
2.18 |
2.18 |
2.29 |
2.41 |
2.67 |
2.86 |
|
11/18/2021 |
0.12 |
0.05 |
0.05 |
0.06 |
0.18 |
0.52 |
0.84 |
1.22 |
1.47 |
1.59 |
2.01 |
1.97 |
Graphics
Graph 1
Graph 2
Graph 3
Graph 4
Shape of yield curve is dependent on a host of factors. This includes future expectations of interest rates, liquidity premium expected for holding long-term investments, investors preferences, demand, and supply of funds and wider economic condition. All these factors interact to give rise shape of the yield curve.
If interest rate expects to be higher in future, people may prefer to park their funds in short term investments. The prices of short-term investment would rise and lead to fall in yield. Yield curve would become upward sloping and reverse situation would make the yield curve downward sloping. Investors may prefer investments with higher liquidity so they may expect a liquidity premium for holding long-term bonds. At the time of financial crisis, liquidity premium may go up. Yield curve would become upward sloping and reverse situation would make the yield curve downward sloping. Investors may have preferences for investing in a particular maturity bucket. Insurers have long-term liabilities, and they like to buy long-term bonds (Gürkaynak, 2007). Commercial banks on the other hand would prefer short-term instruments. Demand and supply of funds available in various maturity buckets at a particular time would influences the yield and shape of the yield curve. Yield curve would also respond to wider economic and political situations and expectations. Central banks effort to manage liquidity, economic policy decisions, and government fiscal program would also have significant impact.
Financial market participants use yield curve in a multiple way. Investors may use yield curve to price their bonds. Cash flow expected from a bond would discount by values derived from yield curves (Evans & Marshall, 2007).
Traders and speculators would trade using yield curve to trade on arbitrage opportunities. if there is one available. They may also trade based on their own expectations of movements of yield curve. Long-term investors may use yield curve to buy new bonds. Currency traders would use the yield curve to price the exchange rates. International investors would use the yield curve to take advantage of arbitrage opportunities available across international economies. Corporate and issuers of bonds would use the yield curve to make decision about pricing and maturity of new bond issues that they may be planning (Christensen, 2018). Yield curve, thus, has a wide range of applicability.
CONCLUSION
This assignment explains the various aspects about the economic growth of United States in terms of its forecast of economic trends as well as in terms of short-term and long-term interest rates in United States. The treasury yields curves and the graphical representations of the selected data of interest rates shows the normal curves instead of flat or inverse curves. The yield curve's shape and level change due to a variety of monetary, economic, and political factors.
Yield curve is reflecting yield curve which is very steep in nature and steepening of Yield curve will reflect an upward sloping Yield curve because the steepening of yield curve will mean that the interest rate expectation in the long run are about to be higher because the investors are expecting growth in the economy and it will mean that the short-term interest rates are lower than the long term interest rates and the long-term interest rates will be higher than the short term interest rates due to the expectation of the economic recovery and the better demand in economy.
The yield curve will reflect that it is a flat and curve and it is a reflection of slower inflation in the economy and lower demand into the economy and it will also mean that the long-term interest rates will be falling, and the short-term interest rates will be falling lower than the long-term interest rate so it is a reflection of low economic growth and hence the short-term interest rates will be higher than the long term interest rates.
REFERENCES
Adams, K., Kim, D., Joutz, F. L., Trost, R. P., & Mastrogianis, G. (1997). Modeling and forecasting US patent application filings. Journal of Policy Modeling, 19(5), 491-535.
Bachman D., (2021). United States Economic Forecast – 3rd Quarter 2021. Deloitte Insights. https://www2.deloitte.com/us/en/insights/economy/us-economic-forecast/united-states-outlook-analysis.html
Christensen, J. H. (2018). The slope of the yield curve and the near-term outlook. FRBSF Economic Letter, 23.
CNBC, (2021). Business News Economy. https://www.cnbc.com/economy/
Donald. F., Trinh, S., Grasino, A., Theoret, E., & Camilleri, E., (2021). Global Macro Outlook: Goldilocks and the three bears. Manulife Investment Management. https://www.manulifeim.com/institutional/global/en/global-macro-outlook
Evans, C. L., & Marshall, D. A. (2007). Economic determinants of the nominal treasury yield curve. Journal of Monetary Economics, 54(7), 1986-2003.
Gürkaynak, R. S., Sack, B., & Wright, J. H. (2007). The US Treasury yield curve: 1961 to the present. Journal of monetary Economics, 54(8), 2291-2304.
US-News. (2021). Economic Growth.https://www.usnews.com/topics/subjects/economic_growth
Interest Rates in 30/12/1992
1 Mo 33968 0 2.5499999999999998 2.46 0.12000000000000002 2 Mo 33968 0 0 2.44 0.05 3 Mo 33968 3.19 2.3099999999999987 2.46 0.05 6 Mo 33968 3.3899999999999997 2.12 2.4899999999999998 6.0000000000000026E-2 1 Yr 33968 3.57 2.06 2.44 0.18000000000000008 2 Yr 33968 4.54 1.9400000000000006 2.2400000000000002 0.52 3 Yr 33968 5.07 2.13 2.1800000000000002 0.8400000000000003 5 Yr 33968 5.98 2.71 2.1800000000000002 1.22 7 Yr 33968 6.39 3.13 2.29 1.47 10 Yr 33968 6.68 3.66 2.4099999999999997 1.59 20 Yr 33968 0 4.4300000000000024 2.67 2.0099999999999998 30 Yr 33968 7.39 4.46 2.86 1.9700000000000006
Interest Rates in 12/02/2008
1 Mo 39490 0 2.5499999999999998 2.46 0.12000000000000002 2 Mo 39490 0 0 2.44 0.05 3 Mo 39490 3.19 2.3099999999999987 2.46 0.05 6 Mo 39490 3.3899999999999997 2.12 2.4899999999999998 6.0000000000000026E-2 1 Yr 39490 3.57 2.06 2.44 0.18000000000000008 2 Yr 39490 4.54 1.9400000000000006 2.2400000000000002 0.52 3 Yr 39490 5.07 2.13 2.1800000000000002 0.8400000000000003 5 Yr 39490 5.98 2.71 2.1800000000000002 1.22 7 Yr 39490 6.39 3.13 2.29 1.47 10 Yr 39490 6.68 3.66 2.4099999999999997 1.59 20 Yr 39490 0 4.4300000000000024 2.67 2.0099999999999998 30 Yr 39490 7.39 4.46 2.86 1.9700000000000006
Interest Rates in 26/03/2019
1 Mo 43550 0 2.5499999999999998 2.46 0.12000000000000002 2 Mo 43550 0 0 2.44 0.05 3 Mo 43550 3.19 2.3099999999999987 2.46 0.05 6 Mo 43550 3.3899999999999997 2.12 2.4899999999999998 6.0000000000000026E-2 1 Yr 43550 3.57 2.06 2.44 0.18000000000000008 2 Yr 43550 4.54 1.9400000000000006 2.2400000000000002 0.52 3 Yr 43550 5.07 2.13 2.1800000000000002 0.8400000000000003 5 Yr 43550 5.98 2.71 2.1800000000000002 1.22 7 Yr 43550 6.39 3.13 2.29 1.47 10 Yr 43550 6.68 3.66 2.4099999999999997 1.59 20 Yr 43550 0 4.4300000000000024 2.67 2.0099999999999998 30 Yr 43550 7.39 4.46 2.86 1.9700000000000006
Interest Rates in 18/11/2021
1 Mo 44518 0 2.5499999999999998 2.46 0.12000000000000002 2 Mo 44518 0 0 2.44 0.05 3 Mo 44518 3.19 2.3099999999999987 2.46 0.05 6 Mo 44518 3.3899999999999997 2.12 2.4899999999999998 6.0000000000000026E-2 1 Yr 44518 3.57 2.06 2.44 0.18000000000000008 2 Yr 44518 4.54 1.9400000000000006 2.2400000000000002 0.52 3 Yr 44518 5.07 2.13 2.1800000000000002 0.8400000000000003 5 Yr 44518 5.98 2.71 2.1800000000000002 1.22 7 Yr 44518 6.39 3.13 2.29 1.47 10 Yr 44518 6.68 3.66 2.4099999999999997 1.59 20 Yr 44518 0 4.4300000000000024 2.67 2.0099999999999998 30 Yr 44518 7.39 4.46 2.86 1.9700000000000006