Bond Yield, 10 Year Treasury Bonds

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The following is excerpted from a speech given by Federal Reserve Governor Ben S. Bernanke at the Bloomberg Panel for the Outlook on the U.S. Economy in New York City on September 4, 2003. In it he discusses recent trends in interest rates and bond yields:

"Finally, a word on long-term interest rates, which as you know have been rising. At current levels, bond yields do not pose a major risk to continuing strength in housing or the recovery in corporate investment, in my view, though they may well end the boom in mortgage refinancing activity. Since those consumers who had the most to gain from refinancing have mostly already done so, a slowdown in refinancing is unlikely to have a significant effect on household spending."

http://www.federalreserve.gov/BoardDocs/speeches/2003/200309042/default.htm

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The following perspective is excerpted from a speech given by Federal Reserve Governor Ben S. Bernanke at the 41st Annual Winter Institute at St. Cloud State University located in St. Cloud, Minnesota on February 21, 2003. In it Mr Bernanke discusses the recent interactions between higher risk corporate bond yields and more stable Treasury bond yields:

"Besides weak profits and the large decline in stock prices, the other obvious negative for the corporate sector is the evident deterioration in aggregate credit quality. The average spreads between yields on risky corporate bonds, such as BBB-rated bonds or high-yield corporate debt, and the yields on safe debt of comparable maturities are currently at elevated levels, equal to or above those seen in the 1990-91 recession. Many companies have had their debt downgraded by ratings agencies, and corporate bond defaults during 2002 amounted to 3.2 percent of the value of bonds outstanding, a rate above the 1991 peak in default rates."

http://www.federalreserve.gov/boarddocs/speeches/2003/20030221/default.htm

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This excerpt is from the U.S. Treasury's Web page. It explains yield curves and the methodology used to arrive at the curve:

"Treasury Yield Curve Rates. These rates are commonly referred to as "Constant Maturity Rates" or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. Treasury Yield Curve Methodology. The Treasury yield curve is estimated daily using a cubic spline model. Inputs to the model are primarily bid-side yields for on-the-run Treasury securities."

http://www.ustreas.gov/domfin/statistics.htm

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