Lecture 10 - Debt Markets: Term Structure

author: Robert J. Shiller, Department of Economics, Yale University
recorded by: Yale University
published: Oct. 7, 2009,   recorded: March 2008,   views: 4118
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)
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Description

The markets for debt, both public and private far exceed the entire stock market in value and importance. The U.S. Treasury issues debt of various maturities through auctions, which are open only to authorized buyers. Corporations issue debt with investment banks as intermediaries. The interest rates are not set by the Treasury, the corporations or the investment bankers, but are determined by the market, reflecting economic forces about which there are a number of theories. The real and nominal rates and the coupons of a bond determine its price in the market. The term structure, which is the plot of yield-to-maturity against time-to-maturity indicates the value of time for points in the future. Forward rates are the future spot rates that can be calculated using today's bond prices. Finally, indexed bonds, which are indexed to inflation, offer the safest asset of all and their price reveals a fundamental economic indicator, the real interest rate.

Reading assignment:

Fabozzi et al. Foundations of Financial Markets and Institutions, chapters 9, 10, 11, 15 and 16

Resources:

PowerPoint slides from screen - Lecture 10 [PDF]

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