Question

what is the typical relationship between interest-rates on three-month Treasury bills, long-term Treasury bonds, and Baa corporate bonds? And based on these charts, what kind of interest rate structures that we can get?

Answer 1

Generally speaking, prices of all three - treasury bills, long term treasury bonds as well as Baa corporate bonds - have an invesrse relatiohsip with interest rate. For instance, increasing demand of T-bills means higher price but lower interest rates.

While the yield curve can move up, down, become flat, etc. but historically there has been a high degree of correlation between short term and long term rates i.e. the yield on short term treasury bills and long term treasury bonds.

For Baa bonds, the spready between treasury bond yield and the Baa bond yield could be dependent on a lot of factors and not necessarily on the treasury bond yield. However, if the underlying treasury bond yield itself changes then the base for Baa bond itself changes.