Executive summary of US Treasury Benchmark Yield

The main objective of this report is to search out the information about the 3-month treasury plan in the financial market of US. Every investment requires to analyze the market before investing the money in the market so that risk could be evaluated. The purpose of the report is to learn about the short term investment like a 3-month treasury yield, which will lead to the situation of long term investment in the financial market. The report contains a brief analysis of two weeks' performance in treasury yield which elaborates the situation of the short term market. As relates to this section, the next portion of report discussed the long term investment in the treasury which is explained in detail. The focusing on overall trend of 3 month US treasury, it is clear that situation is improving and getting betterment with positive change in the yield of 3 month US treasury since 2016. The study based on the significance of the 3-month treasury investment in meaning as 3 month US treasury market is safe for investors to earn yield on their savings and investments unless uncertainties occur again in the economic condition and security market of United States. The report is summed up with conclusion about the 3 month US treasury that impacts in short-run time period for the investors and its influence on the market and shows that the yield bond values are inversely correlated. A reason behind this inverse relationship is the interest of government and central bank. The central bank set out interest rate for securities offered by the US treasury market with different maturity dates. The report also deals with the end results of the investment in 3 month US treasury for the investors and the market (R. W. Hafer, et al., 1992).[1]

Introduction of US Treasury Benchmark Yield

The American stock exchange has a long and powerful history with the past performance of the brokers who made deals with perfect market skills according to the situation where the many investors could not survive, these brokers were known as curbstone brokers who were both open and inclusive about their decision. They have done all kinds of risk investment and flourished that industry in true meanings. They took a chance on small companies, emerging industries, and many companies who are at risk and got higher results. The investment opportunities in the growth of the corporations to grow the equity of the market. The American stock exchange into the world’s largest and the most liquid exchange in the market (D. O. Beltran, et al., 2013).

The equity market is designed to support the small and high growth companies which could be expanded by the high tech investment. The electronic investment in the stock market, which is at two different trading points. The trading of the exchange rate regulated by the SEC, which commodity in the financial market with risk management. As concerned with US treasury bills, Government of the United States sells out US government based bonds, notes, and bills with different interest rates to the public. The treasury rates are most likely interpolated by the treasury from the daily yield curve which could relate to the security of the market bid yield which is traded in the counter market of the stock exchange. These market yield rates are determined by the Federal Bank of New York which fixed the rate of maturity according to different time periods of months and years of maturity. The conditions of the financial markets are most likely to deal with the lowest rates which may results in negative yield in securities trading in the market. Negative yields of the treasury mostly happen with the cash transactions and repurchase agreement of the market other than the value of the money. At the same time the treasury could restrict the negative yield to save the nominal rate of yield in the securities. The regulatory body of the treasury yield in determining the loan and setting the interest rates on government securities for the purpose of borrowing the cost which is related to different investment programs (G. J. Jiang, et al., 2011). [2]

Central banks set out the interest rate for securities offered by the US treasury market with different maturity dates. The 3-month treasury bills or US treasury bills are the most common products of the US treasury market. Thus, 3 month US treasury market is the part of US treasury market. As concern with the significance of 3 months US treasury market, it offers securities to US investors for the collection of funds to pay debt. 3 month US treasury bills are the key product of 3 month US treasury market, which is referred as short term securities and investment products for US citizens by the government as 3 months US treasury bills and securities are offered with maturity date in less than one-year duration.

US Treasury Benchmark Yield of US Treasury Benchmark Yield

US treasury bills are the major product of the US treasury department. The government of the United States sells out US government based bonds, notes, and bills with different interest rates to the public. The purpose behind selling securities and other investment products is to earn cash for the payment of US debt. An increase in the demand for treasury bills and other investment products of the US treasury market results in the decrease of overall yield as central banks reduce interest rates to ensure stability of treasury securities market. US treasury yield most of the time moves inversely to the values of the bonds. An increase in the value of the bond result in the decrease of yield and decrease in the values of bond causes to increase yield. In short, yield and bond values are inversely correlated. A reason behind this inverse relationship is the interest of government and central bank. Central banks set out interest rates for securities offered by the US treasury market with different maturity dates. The 3-month treasury bills or US treasury bills are the most common products of US treasury market. Thus, 3 month US treasury market is the part of US treasury market.

3 month US treasury market offer securities to US investors for the collection of funds to pay the debt. 3 month US treasury bills are the key product of 3 month US treasury market. 3 month US treasury bills or securities are refereed as short term securities and investment products for US citizens by the government as 3 months US treasury bills and securities are offered with maturity date in less than 1-year duration.  The 3-month treasury yield is included on the shorter end of the yield curve and is important when looking at the overall US economy. US government and central banks use interest rates to compensate market demand. High and low market demand directly depends upon the amount of interest offered to investors as profit or yield on invested money. Basically, the interest rate is profit or yield for investors as on maturity date. Buyers are paid back their amounts. Somehow, during the length of security or life of such investment, product investors earn interest on annual or monthly basis. In 3 month US treasury, market interest is normally offered on monthly basis as maturity date of security is just 13 weeks after the date of purchasing (SINHA, 2012).

Two-week performance of US Treasury Benchmark Yield

In this section, the performance of 3 month US treasury market is explained for 2 weeks duration starting from October 7, 2019, to October 18, 2019. Analysis of market shows fluctuation in the closing price of 3 month US treasury investment product. The highest closing price during this two-week duration was 1.673 recorded on October 7, 2019. In the following table, the overall situation of 3 month US treasury investment product is presented. 

In accordance with the above-mentioned table, the yield of 3 month US treasury investment product is declining continuously in this 2-week duration. The bar graph displayed below indicates towards decreasing yield rate (see the linear line).    

Figure 1 US 3 Month Treasury Yield from 7 Oct 2019 to 18 Oct 2019

There can be several reasons to decline in yield during this selected period of two weeks. For instance, the overall drop in the US treasury market or an increase in the demand for competitive products such as .US treasury bills and securities. Considering these reasons.US, the treasury investment product is also analyzed in the same specific period of October 07, 2019 to October 18, 2019. The following graph is projecting that .US treasury market was in a stable condition with slightly improving yield.   If 3 month US treasury market is analyzed then it can be said that in 2 week period the treasury market is depicting a downward trend. The price of US treasury is experiencing a decline in the 2 week period. Due to the decline in prices the daily return is also declining at a drastic rate. In the 2 week period the fluctuations in the prices can be seen which indicates risk (Weygandt, et al., 2009).

In the above table, the descriptive statistics of the treasury price in the 2 week period are presented. The descriptive statistics provide a brief analysis of the price data, and on the basis of the descriptive statistics, different decisions can be taken. Usually, investors evaluate the standard deviation and variance to identify the level of risk in the investment. In the 2 week period it can be seen that the Standard Deviation is 0.49 which is not too high. A low standard deviation shows lower level of risk in the investment. The sample variance is 0.24. It means that the data is not too much spread-out from its mean. The low market volatility is indicated by the standard deviation which means that it is a low-risk market (Fridson & Alvarez, 2011).

From the descriptive statistics of the 3 month US treasury prices, it can be said that the market does not shows much fluctuation in the prices in the 2 week period. The investment in the treasury market is often considered less risky from the other type of investments. The US Treasury are backed by the government and have very low risk. However, it is often said that the lower the risk, the lower will be the return. With low risk the amount of return on treasury will below. The graph is presented below shows that the returns on the treasury are lower as expected.

In the above table, the descriptive statistics of the return of treasury are presented. It can be seen that the 2-week performance of 3-month treasury price & return is not much different. The volatility in return is lower same as the 3-month treasury market price. The mean of the treasury is -0.08852. The median of the data is 0. The standard deviation of the treasury data is 0.30 for the 2 week period.  If the standard deviation of the data is analyzed, then it can be said the level of risk in the treasury market is low the same as the 3-month treasury market. The lower risk is depicted from low standard deviation and variance of the treasury market. If the standard deviation of the treasury prices were higher than it could be said that the risk in the market is higher. But here, this is not the case. The treasury market has usually low risk and lower returns (SINHA, 2012). It can be seen that the prices of treasury are experiencing decline. The prices of 3 moth treasury in the 2 week period was experiencing downward trend were as the prices of treasury, in the long run, are experiencing growth. However due to lower level of risk in the market the percentage return on the market is lower. It is evident that when the risk is higher the return is also higher. It is recommended to the investors to invest in such treasuries which have lower risk because through this. They won’t face any financial loss.

Overall trends in Longer-term performance of US Treasury Benchmark Yield

The long term performance of any market based on the interest rate that resistance in the market for a long period. In the long term, the cost of investment remains low but consistency in terms of fluctuation. In US, the decline in the interest rates effects the market globally which shows different situations in the market regarding the investment. The US treasury benchmark yield also trending to have low rate in long term which may increase in case the equity is more consistent and depend upon the investor who is dealing with the fluctuation of the rates. In long term the performance of US treasury benchmark yield also fluctuates as the other markets are most likely change with variation in the yield rates. US treasury benchmark yield for 3 months converted in too long term bonds, which may be productive in the given above scenario. (D. H. Kim & Wright, 2005).[3]

The central banks set out the interest rate for securities offered by the US treasury market with different maturity dates. The 3-month treasury bills or US treasury bills are the most common products of US treasury market. Thus, 3 month US treasury market is the part of US treasury market. The US treasury bills are invested in the long term market which results and return based on the market conditions that are collaborated with the market in US stock exchange. The rates of the investment in the long term may be adjusted against the inflation which is not in control of a single investor. The market is based on different investments with a number of investors for different time period but in case of long term investment the most probably chances are to remain the market more consistent with rate of return. US economic crisis and interest rate of 3-month treasury bills lower than other available market options was the key reason why investors in the United States were used to invest their reserves and savings in other investment products rather than buying 3 month US treasury. Although rate of return in the long term is most likely to decrease but it gives more reliable results (M. Dungey, et al., 2009). 

US treasury benchmark yield for 3 months is changing for the over. A number of time fluctuations supported higher profit and yield for investors, while sometimes a decrease in the yield causes to bring further changes in the total number of such equity holders. According to an article, US 3 month treasury yield curve is inverted since 2007. Since 2007, treasury interest rate was dramatically increased to attract investors for fixed investment in government bonds. On August 27, 2019 inversion between 3 month US treasury and US .treasury was recorded in the form of basis points. According to this inversion, 3 month US treasury only had 44 basis points in comparison to the basis point of 48 for US .treasury. A report written by Richard Leong shows that inversion between the maturity of these two options (3 months US treasury and .US treasury) has been preceding to US recession in the past 50 years (Reuters.com, 2019).              

However, focusing on the overall trend of 3 month US treasury it is clear that situation is improving and getting betterment with positive change in the yield of 3 month US treasury since 20016. Analysis of yield records from 2007 to Oct 2019 shows that trend for-profit and yield was negative and declining from 2008 to 2014. In 2015, the yield was improved and inclined to 0.148 from 0.037 (2014) (see the presented below bar chart to further collect information about recorded yield for US 3 month treasury bills from 2007 to Oct 2019). Here positive change was occurred in the treasury securities because of government attention towards fair and attractive investment opportunities. US economic crisis and interest rate of 3-month treasury bills lower than other available market options was the key reason why investors in the United States were used to invest their reserves and savings in other investment products rather than buying 3 month US treasury (Fridson & Alvarez, 2011).

In the above table, the descriptive statistics of the treasury market from the years 2007 to 2019 are provided. The detail of the data is showing that in the long run the treasury market possesses some point of risk. The standard deviation, in the long run, is higher which indicates volatility in the prices. The price volatility is sign that the level of risk present in the treasury market. The standard deviation of the data is 1.25 whereas the variance of the data is 1.57. The standard deviation and variance, in the long run, is higher than the short term treasury market. Due to increase in the level of risk the amount of return has also increased significantly. In the graph below it can be seen that the amount of return in few years has experienced massive growth. It means, in the long run, the investor has the opportunity to earn higher return. In short term period the investor might unable to get this opportunity (Jonathan, 2010).[4]

Figure 3 Yield of 3 month US treasury bills market from 2007 to 2019

The figure represented above shows the different rates of return in the long term bond yield performance. The rate fluctuates with the time but in very slow rate. In some years it is more likely to decrease in as with the changing of market position. Analysis of yield records from 2007 to Oct 2019 shows that trend for-profit and yield was negative and declining from 2008 to 2014. In 2015, yield was improved and inclined to 0.148 from 0.037 (2014) (see the presented below bar chart to further collect information about recorded yield for US 3 month treasury bills from 2007 to Oct 2019). Although the rate of return is negative in some years, there is a certain ratio at the end of the year, which shows the increase in return, which is remarkable at the maturity of the yield bond invested in US market. (D. H. Kim & Wright, 2005)

Although, the government handled this situation by changing return and interest rate on this kind of government based securities. From 2007 to 2014, US security market that many financial issues, and yield was decreasing during this period. However, still situation of other government securities was not as bad and terrifying for investors as it was for the investment product of 3 month US treasury bills. US .Treasury bill had relatively better yield, but overall trend was projecting a declining yield for investors during that time (see the presented chart in the appendix for overall trend of US treasury yield from 2007 to Oct 2019).  

The trend of the long term investment affects the productivity of the dynamics and the demographics of the changes in the long term investment which will shift the economic growth in long term.  Assuming that the inflation rate is targeted as 2% and the output is approximately 3 to 4%, there may be risk of 1 percent which could not be avoidable in the term of long term. If the inflation rate is less than the productive rate there may be less or no risk in the investment. Long term investment could not be risk-free but it is more likely to return more in respect of the investment. There may be long term effects of negative feedback, but it could be coverable by the investors. The fluctuating yield was because of changes in the investor’s demand and instable interest rate set out by the government of United States (D. O. Beltran, et al., 2013).

An article published by reuters.com elaborate on the inversion depth of US 3 month treasury yields and the US .treasury yields since 2007. In August 2019, the inversion was increased and recorded as the deepest inversion in the government securities regarding US 3 month treasury yields and US .treasury yields. The dramatic drop in the yield of US .treasury market was already unacceptable for the investor however, situation gets worsened when central banks started cutting interest rates for government securities. Reports written on this inversion indicate that declining rate of yield was unexpected for the investors. While when US 3 month treasury yields returned to 37 basis points (the highest yield since March 2007) then investors demand for 3 month US treasury market products increased from the total demand for the purchase of other government securities including all-time highly demanded security bills of .. Thus, overall trend concludes that interest rate played a significant role in the stability of 3 month US treasury market since 2007 (Reuters.com, 2019). The fluctuating yield was because of changes in the investor’s demand and instable interest rate set out by the government of United States. Conclusively, overall trend shows that 3 months US treasury market had bad times in past however currently situation is getting better and better by the time. Now 3 month US treasury market is safe for investors to earn yield on their savings and investments unless uncertainties occur again in the economic condition and security market of United States (Jonathan, 2010).

Conclusion of US Treasury Benchmark Yield

If all the above discussion is summarized, then it is evident that the descriptive statistics provide a brief analysis of the price data, and on the basis of the descriptive statistics, different decisions can be taken. Usually investors evaluate the standard deviation and variance to identify the level of risk in the investment. In the 2 week period it can be seen that the Standard Deviation is 0.49 which is not too high. A low standard deviation shows lower level of risk in the investment. The sample variance is 0.24. It means that the data is not too much spread-out from its mean. The low market volatility is indicated by the standard deviation which means that it is a low-risk market.

US treasury benchmark yield for 3 months or is changing for the over. A number of time fluctuations supported higher profit and yield for investors, while sometimes a decrease in the yield causes to bring further changes in the total number of such equity holders. According to an article, US 3 month treasury yield curve is inverted since 2007. Since 2007, treasury interest rate was dramatically increased to attract investors for fixed investment in government bonds.

On August 27, 2019, inversion between 3 month US treasury or US treasury bill was recorded in the form of basis points. According to this inversion, 3 month US treasury only had 44 basis points in comparison to the basis point of 48 for US .treasury. The process of 3 moth treasury in the 2 week period was experiencing downward trend were as the prices of treasury are experiencing growth. However due to lower level of risk in the market the percentage return on the market is lower. It is evident that when the risk is higher the return is also higher. It is recommended to the investors to invest in such treasuries which have lower risk because through this they won’t face any financial loss.

References of US Treasury Benchmark Yield

D. H. Kim & Wright, J. H., 2005. An arbitrage-free three-factor term structure model and the recent behavior of long-term yields and distant-horizon forward rates.

D. O. Beltran, Kretchmer, M., Marquez, J. & Thomas, C. P., 2013. Foreign holdings of US Treasuries and US Treasury yields. Journal of International Money and Finance, Volume 32, pp. 1120-1143.

D. O. Beltran, Kretchmer, M., Marquez, J. & Thomas, C. P., 2013. Foreign holdings of US Treasuries and US Treasury yields. Journal of International Money and Finance, Volume 32, pp. 1120-1143.

Fridson, M. S. & Alvarez, F., 2011. Financial Statement Analysis: A Practitioner's Guide. s.l.:John Wiley & Sons.

G. J. Jiang, Lo, I. & Verdelhan, A., 2011. Information shocks, liquidity shocks, jumps, and price discovery: Evidence from the US Treasury market. Journal of Financial and Quantitative Analysis, 46(2), pp. 527-551.

Jonathan, B., 2010. Financial Management. s.l.:Pearson Education India.

M. Dungey, McKenzie, M. & Smith, L. V., 2009. Empirical evidence on jumps in the term structure of the US Treasury market. Journal of Empirical Finance, 16(3), pp. 430-445.

R. W. Hafer, Hein, S. E. & MacDonald, S. S., 1992. Market and survey forecasts of the three-month treasury bill rate. Journal of Business, pp. 123-138.

Reuters.com, 2019. TREASURIES-U.S. 3-month. yield inversion deepest since March 2007. [Online]
Available at: https://www.reuters.com/article/usa-bonds-inversion/treasuries-u-s-3-month-.-yield-inversion-deepest-since-march-2007-idUSL2N2530C5

Reuters.com, 2019. TREASURIES-U.S. 3-month/. yield curve most inverted since 2007. [Online]
Available at: https://www.reuters.com/article/usa-bonds-yieldcurve/treasuries-u-s-3-month-.-yield-curve-most-inverted-since-2007-idUSL2N25N09A

SINHA, G., 2012. FINANCIAL STATEMENT ANALYSIS. s.l.:PHI Learning Pvt. Ltd.

Weygandt, J. J., Kimmel, P. D. & Kieso, D. E., 2009. Financial Accounting. 7 ed. s.l.:John Wiley & Sons.

 Appendix

Figure 4 Overall trend of the US .treasury yield from 2007 to 2019.