Essay: The Yield Curve
1) Economic Analysis:
a) Write up the 3rd quarter GDP analysis of 2010
It has been confirmed that the recession period is not over as it was realized in October 2008 at a value of 0.4 % (MISH’S Global Economic Trend Analysis). With the current GDP at 2.5 %, it is argued that it may not go beyond 3.5% or even at worse times, it may fall. The third quarter GDP is now at 2.5% or 0.025.
2) Financial Market Analysis: 12/31/2008-9/30/2010
a) Yield Curve
1. What has happened to the shape of the curve over this time period? What does this imply? –
The yield curve is shown to be decreasing from 2006 to date. This implies that the economy is deteriorating at a very high rate and there no indications that it may rise soon. A slight improvement is reported in 2008 but this is outdone by the reports in 2009 and 2010, since there are increasing decreases. Although there was increase reported in 2008 making each investor in bonds think that the yield had started increasing, negative results have been reported in 2009 and 2010 implying that there is no improvement. It has been argued that the economy might continue deteriorating and this will affect the market prices of the bonds negatively resulting to decreased yields. The shape of the curve shows that what was not done in 2008 cannot be relied upon since it yielded only short-term results, which positively affected the yields of that year only. The researchers who had come up with such recommendations had not done enough research and thus there findings backfired. Further comprehensive and extensive research needs to be done so that the recommendations from the findings will have a long-term effect, which will positively affect the yields of the coming years (Johnson 67).