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(1) Please explain what it means to the yield to maturity on a 10-year Treasury bond...

(1) Please explain what it means to the yield to maturity on a 10-year Treasury bond relative to that on a 1-year T-bond, when a yield curve is upward sloping?

(2) Could you explain what factors help make the yield curve upward sloping and how?

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Answer #1

1. It means that the YTM or rate of long term bonds or 10 year treasury bonds are higher than short term or 1 year bonds.Upward sloping yield curve means higher maturity bonds will have higher YTM.

2. Factors causing upward sloping curve
1. Short term bonds have higher demand as compared to long term bonds. This causes price of short term bonds to be higher and risk or YTM to be lower as compared to long term bonds.
2. Maturity Risk: 10 Year bond would have higher maturity risk as compared to short term bond as a result YTM of long term bond would be higher leading to upward sloping.
3. Liquidity Risk : Short term bonds have lower liquidity risk as compared to long term bonds. Hence YTM of short term bonds is lower. This causes upward sloping.

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