Heavy buying of the 3-month Treasury bill, considered one of the safest investments aroun a fractious day across the financial markets. ... When investors are fearful of taking risks, t the difference between the yield on a corporate bond and a government bond, have been a noted Citigroup economist Steven Wieting in a note Thursday. That means it could be very is essential to growing and maintaining a business if the credit markets don't thaw....In ot Treasury note fell 28/32 to 103 29/32. Its yield rose to 3.53 percent from 3.42 percent late Data. Yields move in the opposite direction from prices.... On Wednesday [September 17, soared so high that the yield briefly dipped into negative territory, which means a bill holde investors, a small loss is preferable to the massive declines seen this week on Wall Street. So what events, in particular, caused this rush to T-bills? The following unsettling developm for this freeze: the bankruptcy of Lehman Brothers Holdings Inc., the absorption of Merrill L billion government bailout of the insurer American International Group Inc., and a money-m failed to maintain assets of at least $1 for every dollar its clients invested. Answer the following two questions. Question 1: Explain the negative yield curve. Question 2: Explain how the relationship between the bond market and the economy.
Heavy buying of the 3-month Treasury bill, considered one of the safest investments aroun a fractious day across the financial markets. ... When investors are fearful of taking risks, t the difference between the yield on a corporate bond and a government bond, have been a noted Citigroup economist Steven Wieting in a note Thursday. That means it could be very is essential to growing and maintaining a business if the credit markets don't thaw....In ot Treasury note fell 28/32 to 103 29/32. Its yield rose to 3.53 percent from 3.42 percent late Data. Yields move in the opposite direction from prices.... On Wednesday [September 17, soared so high that the yield briefly dipped into negative territory, which means a bill holde investors, a small loss is preferable to the massive declines seen this week on Wall Street. So what events, in particular, caused this rush to T-bills? The following unsettling developm for this freeze: the bankruptcy of Lehman Brothers Holdings Inc., the absorption of Merrill L billion government bailout of the insurer American International Group Inc., and a money-m failed to maintain assets of at least $1 for every dollar its clients invested. Answer the following two questions. Question 1: Explain the negative yield curve. Question 2: Explain how the relationship between the bond market and the economy.
Chapter1: Making Economics Decisions
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![Read the following article, which introduces the concept of Treasury bills and the relationship between their yield and price. Then answer
the question that follows.
HOW DO T-BILL YIELDS GO NEGATIVE? BY THE APLIA ECONOMICS CONTENT TEAM
The week of September 15, 2008, was ripe with volatility in U.S. financial markets. Events unfolding in the wake of the mortgage crisis made
investors extremely fearful. One result of this fear was a "flight to quality" as investors sought to avoid risk by moving their funds into the
safest asset classes. U.S. Treasury securities (or "Treasuries," as they're commonly known) are one such asset class, considered to have
virtually no risk.
An article from the Associated Press (Madlen Read, "Treasures Dip on RTC Speculation, but Anxiety High," September 18, 2008) discusses
some of the factors that led investors to bid up the prices of 3-month United States Treasury bills (T-bills) to such an extent that their yields
fell to a shockingly low level. Before 2008, the last time the T-bill yield was negative was 1940, in the early stages of World War II. According
to the article:
Heavy buying of the 3-month Treasury bill, considered one of the safest investments around, sent its yield to just above zero at times during
a fractious day across the financial markets.... When investors are fearful of taking risks, the economy suffers. Corporate credit spreads, or
the difference between the yield on a corporate bond and a government bond, have been approaching levels not seen since World War II,
noted Citigroup economist Steven Wieting in a note Thursday. That means it could be very expensive for companies to borrow money, which
is essential to growing and maintaining a business if the credit markets don't thaw.... In other late Treasury trading, the benchmark 10-year
Treasury note fell 28/32 to 103 29/32. Its yield rose to 3.53 percent from 3.42 percent late Wednesday, according to BGCantor Market
Data. Yields move in the opposite direction from prices.... On Wednesday [September 17, 2008], demand for the 3-month Treasury bill had
soared so high that the yield briefly dipped into negative territory, which means a bill holder would take a small loss at maturity. To many
investors, a small loss is preferable to the massive declines seen this week on Wall Street.
So what events, in particular, caused this rush to T-bills? The following unsettling developments on Wall Street are claimed to be responsible
for this freeze: the bankruptcy of Lehman Brothers Holdings Inc., the absorption of Merrill Lynch & Co. by Bank of America Corp., the $85
billion government bailout of the insurer American International Group Ic., and a money-market fund that had exposure to Lehman and
failed to maintain assets of at least $1 for every dollar its clients invested.
Answer the following two questions.
Ouortion 1: Fynlain the negative vield curve.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff54d6ed1-5aad-443e-bb92-21b5bc94bb9e%2F9e6c2cf1-a9c0-47a4-975c-5a4eb3f0f649%2Fkqnzvyll_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Read the following article, which introduces the concept of Treasury bills and the relationship between their yield and price. Then answer
the question that follows.
HOW DO T-BILL YIELDS GO NEGATIVE? BY THE APLIA ECONOMICS CONTENT TEAM
The week of September 15, 2008, was ripe with volatility in U.S. financial markets. Events unfolding in the wake of the mortgage crisis made
investors extremely fearful. One result of this fear was a "flight to quality" as investors sought to avoid risk by moving their funds into the
safest asset classes. U.S. Treasury securities (or "Treasuries," as they're commonly known) are one such asset class, considered to have
virtually no risk.
An article from the Associated Press (Madlen Read, "Treasures Dip on RTC Speculation, but Anxiety High," September 18, 2008) discusses
some of the factors that led investors to bid up the prices of 3-month United States Treasury bills (T-bills) to such an extent that their yields
fell to a shockingly low level. Before 2008, the last time the T-bill yield was negative was 1940, in the early stages of World War II. According
to the article:
Heavy buying of the 3-month Treasury bill, considered one of the safest investments around, sent its yield to just above zero at times during
a fractious day across the financial markets.... When investors are fearful of taking risks, the economy suffers. Corporate credit spreads, or
the difference between the yield on a corporate bond and a government bond, have been approaching levels not seen since World War II,
noted Citigroup economist Steven Wieting in a note Thursday. That means it could be very expensive for companies to borrow money, which
is essential to growing and maintaining a business if the credit markets don't thaw.... In other late Treasury trading, the benchmark 10-year
Treasury note fell 28/32 to 103 29/32. Its yield rose to 3.53 percent from 3.42 percent late Wednesday, according to BGCantor Market
Data. Yields move in the opposite direction from prices.... On Wednesday [September 17, 2008], demand for the 3-month Treasury bill had
soared so high that the yield briefly dipped into negative territory, which means a bill holder would take a small loss at maturity. To many
investors, a small loss is preferable to the massive declines seen this week on Wall Street.
So what events, in particular, caused this rush to T-bills? The following unsettling developments on Wall Street are claimed to be responsible
for this freeze: the bankruptcy of Lehman Brothers Holdings Inc., the absorption of Merrill Lynch & Co. by Bank of America Corp., the $85
billion government bailout of the insurer American International Group Ic., and a money-market fund that had exposure to Lehman and
failed to maintain assets of at least $1 for every dollar its clients invested.
Answer the following two questions.
Ouortion 1: Fynlain the negative vield curve.
Transcribed Image Text:to the article:
Heavy buying of the 3-month Treasury bill, considered one of the safest investments aroun
a fractious day across the financial markets.... When investors are fearful of taking risks, t
the difference between the yield on a corporate bond and a government bond, have been a
noted Citigroup economist Steven Wieting in a note Thursday. That means it could be very
is essential to growing and maintaining a business if the credit markets don't thaw... In ot
Treasury note fell 28/32 to 103 29/32. Its yield rose to 3.53 percent from 3.42 percent late
Data. Yields move in the opposite direction from prices.... On Wednesday [September 17,
soared so high that the yield briefly dipped into negative territory, which means a bill holde
investors, a small loss is preferable to the massive declines seen this week on Wall Street.
So what events, in particular, caused this rush to T-bills? The following unsettling developm
for this freeze: the bankruptcy of Lehman Brothers Holdings Inc., the absorption of Merrill I
billion government bailout of the insurer American International Group Inc., and a money-m
failed to maintain assets of at least $1 for every dollar its clients invested.
Answer the following two questions.
Question 1: Explain the negative yield curve.
Question 2: Explain how the relationship between the bond market and the economy.
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