In this exercise, we will demonstrate how you can get information on the term structure of interest rates and relate yields spreads to the economic outlook. Go to www.bondsonline.com. If you are unable to find the information on this site here is an alternate site to look for the information Bonds | Market Data Center | Barron's (barrons.com)

Click on Todays Market and then click on Composite Bond Yields along the left-hand margin. Select Click for Data and write down the yields under U.S. Treasury Bonds for three months through 30 years. Plot out the data. Based on the expectations hypothesis, would you expect the future movement in interest rates to be up or down? What is the yield on 10-year U.S. Treasuries? What is the yield on 10-year AAA- rated corporate bonds? Compute the differences between the two to get the so-called spread. The normal spread between the two is 30 to 50 basis points, but it expands to 50 to 100 basis points when people become concerned about the economy (they want an increasingly higher yield to take a risk). Based on the number you just computed, what does it appear bond investors are telling us about their outlook for the economy?