Lecture 10:

Fixed Income [Part 1]

December 2011

The next 3 hours

For lecture on 12 Dec [1.5 hours]
Yield curve
Exercise calculating yield volatility

For lecture on 13 Dec [1.5 hours]

Duration
Duration profiles Ladder, Barbell, Bullet
Exercises related to duration

Both dates - Exam discussions/revisions [1.5 hours each

day]

Yield Curve
Its the relation between yields and time term
structure of interest rates
Different shapes
The shape of the yield curve tells us a lot about
monetary policy and market perceptions of debt
credibility

Yield curve

Yield curve

US Treasury Yield Curve

UK Yield Curve

Germany Yield Curve

Japan Yield Curve

Australian Yield Curve

Brazilian Yield Curve

Theories explaining yield curve shapes

Expectation theory of the term structure of interest
rates
Pure Expectations theory the entire term structure at
a given time reflects the markets current expectations
of the family of future short-term rates
Liquidity Preference theory future rates reflect both
interest rate expectations and a liquidity premium
Preferred Habitat theory expectations of interest
rates + risk premia

Italian Yield Curve

Greek yield curve

Contact
Varun Khandelwal
Bullero Advisors LLP
306 ABW Towers
MG Road, IFFCO Chowk
Gurgaon 122 002, India
Ph: +91 (124) 411 0803/04/05
Fax: +91 (124) 400 0806
Email: varun.khandelwal@bullerocapital.com