Assignment for Fixed Income:
We are going to examine the behavior of the Treasury Yield Curve and in particular the ten-year and the
two-year notes. We will also examine the difference between these two rates. It is conjectured that if
the Yield Curve “inverts” or when the yields the two-year Treasury note approach the level of yield on
the ten-year note, then the market is “signaling,“ a possible future recession. Stated differently, when
the difference between the ten-year and two-year Treasury rates goes to zero (or negative), then the
market appears to “signal” a possible future recession (two-consecutive quarters of negative GDP
growth).
For this assignment you will go to the Treasury website and pull off some data and examine the
difference between the ten-year and two-year Treasury rates to see when they go to zero (negative) and
what that may mean for the stock market.
Steps:
1.) Go to the Website: www.treasury.gov
esource-cente
data-chart-cente
interest-rates
2.) Click on: Daily Treasury Yield Curve Rates
3.) Go to: Select type of Interest Rate Data
4.) Scroll down to: Historic Treasury Rates Chart (hit GO)
5.) Now you will have to allow Adobe to run on your system.
6.) Now in the Choose Date Range specify the following ranges:
Below are the recessions for the U.S. market. We will look at the three most recent recessions to
examine the behavior of the U.S. yield curve as well as the most cu
ent behavior of the yield curve in
2019.
Recession Date of Recession Length XXXXXXXXXXRate XXXXXXXXXXGDP XXXXXXXXXXExplanation
Early 1990s
ecession in
the United
States
July 1990-
Mar 1991
8 months
7 years
8
months
7.8%
(June
1992)
−1.4%
After the lengthy peacetime expansion
of the 1980s, inflation began to
increase and the Federal Reserve
esponded by raising interest rates
from 1986 to 1989. This weakened but
did not stop growth, but some
combination of the subsequent 1990 oil
price shock, the debt accumulation of
the 1980s, and growing consumer
pessimism combined with the
weakened economy to produce a
ief
ecession.[64][65][66]
http:
www.treasury.gov
esource-cente
data-chart-cente
interest-rates
https:
www.treasury.gov
esource-cente
data-chart-cente
interest-rates/Pages/TextView.aspx?data=yield
https:
en.wikipedia.org/wiki/Early_1990s_recession_in_the_United_States
https:
en.wikipedia.org/wiki/Early_1990s_recession_in_the_United_States
https:
en.wikipedia.org/wiki/Early_1990s_recession_in_the_United_States
https:
en.wikipedia.org/wiki/Early_1990s_recession_in_the_United_States
https:
en.wikipedia.org/wiki/1990_oil_price_shock
https:
en.wikipedia.org/wiki/1990_oil_price_shock
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-68
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-69
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-70
Early 2000s
ecession
Mar 2001-
Nov 2001
8 months
10
years
6.3%
(June
2003)
−0.3%
The 1990s were the longest period of
growth in American history. The
collapse of the speculative dot-com
u
le, a fall in business outlays and
investments, and the September 11th
attacks,[67]
ought the decade of
growth to an end. Despite these major
shocks, the recession was
ief and
shallow.[68]
Great
Recession
Dec 2007-
June
2009[69][70]
1 year
6 months
6 years
1
month
10.0%
(October
2009)[71]
−5.1%[72]
The subprime mortgage crisis led to the
collapse of the United States housing
u
le. Falling housing-related assets
contributed to a global financial crisis,
even as oil and food prices soared. The
crisis led to the failure or collapse of
many of the United States' largest
financial institutions: Bear Stearns,
Fannie Mae, Freddie Mac, Lehman
Brothers, Citi Bank and AIG, as well as a
crisis in the automobile industry. The
government responded with an
unprecedented $700 billion bank
ailout and $787 billion fiscal stimulus
package. The National Bureau of
Economic Research declared the end of
this recession over a year after the end
date.[73] The Dow Jones Industrial
Average (Dow) finally reached its
lowest point on March 9, 2009.[74]
https:
en.wikipedia.org/wiki/Early_2000s_recession
https:
en.wikipedia.org/wiki/Early_2000s_recession
https:
en.wikipedia.org/wiki/Dot-com_bu
le
https:
en.wikipedia.org/wiki/Dot-com_bu
le
https:
en.wikipedia.org/wiki/Economic_effects_arising_from_the_September_11_attacks
https:
en.wikipedia.org/wiki/Economic_effects_arising_from_the_September_11_attacks
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-NBER_Nov_01-71
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-72
https:
en.wikipedia.org/wiki/Great_Recession
https:
en.wikipedia.org/wiki/Great_Recession
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-73
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-74
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-75
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-76
https:
en.wikipedia.org/wiki/Subprime_mortgage_crisis
https:
en.wikipedia.org/wiki/United_States_housing_bu
le
https:
en.wikipedia.org/wiki/United_States_housing_bu
le
https:
en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010
https:
en.wikipedia.org/wiki/Bear_Stearns
https:
en.wikipedia.org/wiki/Fannie_Mae
https:
en.wikipedia.org/wiki/Freddie_Mac
https:
en.wikipedia.org/wiki/Lehman_Brothers
https:
en.wikipedia.org/wiki/Lehman_Brothers
https:
en.wikipedia.org/wiki/American_International_Group
https:
en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%932009
https:
en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
https:
en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
https:
en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009
https:
en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-77
https:
en.wikipedia.org/wiki/File:DJIA_historical_graph_to_jan09_(log).svg
https:
en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#cite_note-Stark-78
Post Great
Recession
January
2019 to
October
2019
Recession?
+3.6%
The stock market fully recovered from
its historic lows of 2008 and the
Treasury markets have offered positive
yields on short-term debt (unlike the
European and Japanese markets). But
dark clouds overhang the U.S. economy
with further interest rate cuts on the
table and trade wars continuing. The
question is whether what signal the
ond market is projecting for the U.S.
economy?
1.) Type in the date ranges from January to December for the following years: 1990, 2000 to 2001,
2007, and 2019. What is the behavior for the difference in the 10-year and two-year Treasury
ates? What does a negative 10-year minus two-year rate indicate?
2.) Go back to the website and also enter in the date range from 1998 to 1999 (again January to
December). Is the difference in rates zero? If so, did the “inversion” predict a recession?
3.) Go back to the Website and type in the date range 2005 to 2006. Did the yield curve predict a
U.S. recession in 2006? Did a U.S. recession occur in 2005 or 2006?
4.) Go back and investigate the yield curve for 2019. Did the term structure invert during 2019? Do
you think the U.S. will go into recession in 2020? Why or why not?
https:
en.wikipedia.org/wiki/Great_Recession
https:
en.wikipedia.org/wiki/Great_Recession