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1、Chapter 6TheRiskandTermStructureofInterestRatesOutline Examining the relationship of the various interest rates to one another Risk structure of interest rates Why Bond with same term to maturity have difference interest rates Term structure of interest ratesThe relationship among interest rates on
2、bonds with different terms to maturity 货币金融学LectureInterest rates on difference categories of bonds differ from one another in any given year The spread between the interest rates varies over time Risk Structure of Interest Rates 3货币金融学LectureRisk Structure of Interest RatesDefault riskoccurs when t
3、he issuer of the bond is unable or unwilling to make interest payments or pay off the face valueU.S. T-bonds are considered default freeRisk premiumthe spread between the interest rates on bonds with default risk and the interest rates on T-bonds Liquiditythe ease with which an asset can be converte
4、d into cashIncome tax considerations4货币金融学LectureDefault Risk A bond with default risk will always have a positive risk premium, and an increase in its default risk will raise the risk premium 5货币金融学Lecture Because default risk is so important to the size of the risk premium , purchases of bonds nee
5、d to know whether a corporation is likely to default on its bonds. This information is provided by credit-rating agencies, investment advisory firms that rate the quality of corporate and municipal bonds in terms of the probability of default. 货币金融学LectureBonds with ratings below Baa (or BBB) are co
6、nsider as junk bonds7货币金融学Lecture美评级机构下调美国抵押贷款债券信用等级美评级机构下调美国抵押贷款债券信用等级发布时间：2007-07-11全球知名评级机构标准普尔公司和穆迪投资服务公司日下调美国抵押贷款债券的信用等级，市场担心这表明美国房地产和信贷市场状况将进一步恶化。当天，标准普尔下调了美国种抵押贷款债券的信用等级，穆迪则下调了种抵押贷款债券的信用等级。两家信用评级机构的举动表明美国房地产市场陷入泥潭，短期内无法走出困境。债券信用级别降低，意味着持有抵押贷款债券的投资者将不可避免地遭受损失，并有可能引发抵押贷款利息上调。分析人士认为，目前困扰美国次级抵押贷款
7、市场的信用问题无法改善，房地产市场将持续萎靡，并有可能影响美国的经济增长。（新华网）货币金融学LectureLiquidity A liquidity assetsis one that can be quickly and cheaply converted into cash if the need arises. The more liquidity an assets is , the more desirable it is ( holding everything else constant )US Treasury Bonds are most liquid of all lon
8、g term bondsCorporate Bonds are less liquid 货币金融学LectureIncome Tax ConsiderationThe Municipal Bonds have the lowest interest rate despite they have higher default risks and less liquid than those of US treasury bonds 货币金融学LectureThe interest payments on municipal bonds are exempt from federal income
9、 tax raise the after-tax expected return on these bonds demand rises demand curve of municipal bonds increases 货币金融学Lecture12货币金融学LectureTerm Structure of Interest RatesBonds with identical risk, liquidity, and tax characteristics may have different interest rates because the time remaining to matur
10、ity is differentYield curvea plot of the yield on bonds with differing terms to maturity but the same risk, liquidity and tax considerationsUpward-sloping long-term rates are above short-term ratesFlat short- and long-term rates are the sameInverted long-term rates are below short-term rates13货币金融学L
11、ectureYield Curve:A plot of the yields on bonds with differing time remaining to maturity but the same risk , liquidity and tax consideration货币金融学LectureSomeEmpiricalFactsInterest rates on bonds of different maturities move together over time When short-term interest rates are low, yield curves are
12、more likely to have a upward slope; When short-term rates are high, yield curves are more likely to slope downward and be inverted Yield curves almost always slope upward How to explain these facts ? 货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-16货币金融学LectureCopyright2007Pearso
13、nAddison-Wesley.Allrightsreserved.6-17Expectations TheoryThe interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bondEg. If people expect that short-term interest rates will be 10% on average over the com
14、ing five years, the theory predicts that the interest rate on bonds with five years to maturity will be 10% Assumption: Buyers of bonds do not prefer bonds of one maturity over another; they will not hold any quantity of a bond if its expected return is less than that of another bond with a differen
15、t maturityBonds like these are said to be perfect substitutes货币金融学LectureExpectationsTheoryInGeneralConsider two strategies : Purchase a one-year bond , and when it matures in one year, purchase another one year-bond Purchase a two-year bond and hold it until maturity 货币金融学LectureCopyright2007Pearso
16、nAddison-Wesley.Allrightsreserved.6-19Expectations TheoryIn General (contd)货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-20Expectations TheoryIn General (contd)货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-21Expectations TheoryIn General (contd)货币金融学LectureC
17、opyright2007PearsonAddison-Wesley.Allrightsreserved.6-22Expectations TheoryExerciseIf one year interest rate over the next five years is expected to be 3%,4%,5% ,6% and7% Under Expectation Theory , the interest rate on a two-year bond, a three-year bond , a four-year bond and five-year bond must be?
18、 Two-year bond : (3%+4%)/2=3.5%Three-year bond : (3%+4%+5%)/3=4%Four-year bond :(3%+4%+5%+6%)/4=4.5%Five-year bond: (3%+ 4%+5%+6%+7%)/5=5% If interest rates are expected to rise in the future , then long-term interest rate is higher than short term one货币金融学LectureCopyright2007PearsonAddison-Wesley.A
19、llrightsreserved.6-23Expectations TheoryExplains why interest rates on bonds with different maturities move together over time (fact 1) A rise in short-term rates will raise peoples expectations of future short-term interest rates, thus raise long-term rates, causing short-term and long term rates t
20、o move together 货币金融学LectureExplains why yield curves tend to slope up when short-term rates are low and slope down when short-term rates are high (fact 2)When short-term interest rates are low ,people generally expect them to rise to some normal level in the future average of future expected short-
21、term rates is high relative to current short-term rate long term interest rte will be higher then current short-term rateCannot explain why yield curves usually slope upward (fact 3) The typical upward slope of yield curves implies that short term rates are usually expected to rise in the future. In
22、 practice, short term rates are just as likely to fall as they are to rise yield curve should be flat 货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-25Segmented Markets TheoryThe interest rate for each bond with a different maturity is determined by the demand for and supply of t
23、hat bondAssumption: Bonds of different maturities are not substitutes at all, so the expected return from holding a bond of one maturity has no effect on the demand for a bond of another maturity. Investors have preferences for bonds of one maturity over anotherIf investors have short desired holdin
24、g periods and generally prefer bonds with shorter maturities that have less interest-rate risk, then this explains why yield curves usually slope upward (fact 3)货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-26Liquidity Premium & Preferred Habitat TheoriesThe interest rate on a l
25、ong-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond + a liquidity premium that responds to supply and demand conditions for that bondAssumption Bonds of different maturities are substitutes but not perfect substitutes. The expected r
26、eturn on one bond does influence the expected return on a bond of different maturity ,but it allows investors to prefer one bond maturity over another .Investors tend to prefer short-term bonds (less interest rate risk)货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-27Liquidity Pr
27、emium Theory货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-28Preferred Habitat TheoryInvestors have a preference for bonds of one maturity over anotherThey will be willing to buy bonds of different maturities only if they earn a somewhat higher expected returnInvestors are likely
28、 to prefer short-term bonds over longer-term bonds货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-29货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-30Liquidity Premium and Preferred Habitat Theories, Explanation of the FactsInterest rates on different maturity b
29、onds move together over time A rise in short-term interest rates indicates that short-term interest rate will be higher in the future ,and the first term in Equation implies that long-term rates will rise along with them 货币金融学LectureLiquidity Premium and Preferred Habitat Theories, Explanation of th
30、e FactsYield curves tend to have an especially steep slope upward when short-term rates are low and to be inverted when short-term rates are highBecause investors generally expect short-term interest rates to rise to some normal level when they are low , the average of future expected short-term rat
31、s will be high relative to the current short-term rate. With the additional boost of a positive liquidity premium, long-term interest rates will be substantially higher than the current short ones, and the yield curve will have a steep upward slope 货币金融学LectureLiquidity Premium and Preferred Habitat
32、 Theories, Explanation of the FactsThe liquidity premium and preferred habitat theory explain fact 3, which states that yield curve typically slope upward , by recognizing that the liquidity premium rises with a bonds maturity because of investors preferences for short-term bonds . Even if short-ter
33、m interest rates are expected to stay the same on average, the premium makes long-term rates be above short-term rates yield curve typically slop upward 货币金融学LectureLiquidity Premium and Preferred Habitat Theories, Explanation of the FactsHow to explain the inverted yield curve if liquidity premium
34、is positive? It must be that at times short-term interest rates are expected to fall so much in the future and the average of the expected short-term rates is so below the current short-term rate. Even when the positive premium is added, the resulting long-term rate will be still lower than the curr
35、ent one货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-34货币金融学LectureYield curve as a forecasting tool The yield curve has relevance not only for assessing investment opportunities, but for policy-makers who are trying to predict conditions in the macroeconomyRecall that rising in
36、terest rates are associated with expansions, and falling rates with recessions.If the yield curve is negatively-sloped, indicating expectations of falling short-term rates, it may be a predictor of a recessionRecall that a rise in expected inflation causes interest rates to rise.A steep yield curve
37、is a predictor of a rise in inflation, while a flat or down-sloping curve predicts a fall in inflation.Alternatively: steep curve indicates loose monetary policy, while a flat or down-sloping curve indicates tight policy.货币金融学LectureCopyright2007PearsonAddison-Wesley.Allrightsreserved.6-36货币金融学Lecture
