1.Suggest (and explain) a possible reason that the yield curve in August 2008 slopes the way it does (think about what was happening in the world around that time).

Ans :

Secondary market government bond yields Secondary market government bond yields Secondary market government bond yields Secondary market government bond yields Bank bill yields Bank bill yields Bank bill yields Cash rate Official Cash Rate (OCR) Cash rate Overnight interbank cash rate 30 days 60 days 90 days 2 year 5 year 10 year 1 year Yes %pa INM.MP1.N.nae %pa INM.MN.NZK % INM.MBO2.N %pa INM.MG101.N %pa INM.MG105.N 8.00 8.03 %pa INM.MBO.N 8.46 8.20 7.95 712 8.48 8.29 8.03 7.50 6.44 5.36 4.60 9.00 6.90 6.88 6.43 561 %pa INM.MG102.N 6.19 6.19 5.77 557 Notes Unit Series Id Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Jan 2010 7.89 7.52 7.10 6.26 5.05 4.66 3.36 3.08 3.01 3.60 8.00 8.00 7.50 6.50 6.50 5.00 3.50 3.50 3.00 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 %pa INM.MB01.N 8.45 8.29 8.11 7.59 6.74 5.44 4.80 3.83 3.43 3.29 2.83 2.80 2.79 2.78 2.79 2.78 2.78 2.75 273 3.37 7.00 %pa INM.MG110.N 6.18 6.13 5.82 5.86 5.73 4.88 4.49 4.53 4.77 5.24 5.59 5.97 5.75 5.82 5.63 5.66 6.01 6.02 6.00 6.18 6.18 5.77 5.69 5.48 4.58 4.03 3.88 4.02 4.36 4.48 4.80 4.72 4.91 4.84 5.06 5.43 5.41 5 34 6.00 3.22 5.00 2.82 4.00 2.80 3.00 2.79 2.00 2.37 2.79 1.00 2.79 0.00 2.45 2.43 2.53 2.58 2.49 2.41 2.43 2.42 0 1 2 3 4 5 6 7 8 9 Dec-10 Nov-19 2.78 2.78 2.76 275 Aug-08 ........(Aug-08) (Dec-10) (Nov-19) 2.50