About: Term Structure

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Bonds are issued with different times to maturity and can be group into either short term or long term bonds. The time to maturity for short-term bonds is usually less than a year and these bonds are therefore considered highly liquid. Bonds usually pay a rate of interest (Coupon Bond), but there are also bonds that don't pay any interest until the maturity date (Zero-coupon Bond). Bonds can be traded on capital markets. The price of the bond is inversly related to its interest rate and will reflect a liquidity, as well as a risk premium. Longer term bonds (10, 20, 30, 50 years) also pay a real rate of interest plus a liquidity premium. Bonds issued by the US treasury are considered risk free, bonds issued by other countries or corporations however usually pay a risk premium. The liquidity

Attributes	Values
rdfs:label	Term Structure
rdfs:comment	Bonds are issued with different times to maturity and can be group into either short term or long term bonds. The time to maturity for short-term bonds is usually less than a year and these bonds are therefore considered highly liquid. Bonds usually pay a rate of interest (Coupon Bond), but there are also bonds that don't pay any interest until the maturity date (Zero-coupon Bond). Bonds can be traded on capital markets. The price of the bond is inversly related to its interest rate and will reflect a liquidity, as well as a risk premium. Longer term bonds (10, 20, 30, 50 years) also pay a real rate of interest plus a liquidity premium. Bonds issued by the US treasury are considered risk free, bonds issued by other countries or corporations however usually pay a risk premium. The liquidity
dcterms:subject	Macroeconomics
dbkwik:economics/p...iPageUsesTemplate	dbkwik:resource/LtyVdXglRH1zNuf5iI1a_g==
abstract	Bonds are issued with different times to maturity and can be group into either short term or long term bonds. The time to maturity for short-term bonds is usually less than a year and these bonds are therefore considered highly liquid. Bonds usually pay a rate of interest (Coupon Bond), but there are also bonds that don't pay any interest until the maturity date (Zero-coupon Bond). Bonds can be traded on capital markets. The price of the bond is inversly related to its interest rate and will reflect a liquidity, as well as a risk premium. Longer term bonds (10, 20, 30, 50 years) also pay a real rate of interest plus a liquidity premium. Bonds issued by the US treasury are considered risk free, bonds issued by other countries or corporations however usually pay a risk premium. The liquidity premium for short-term bonds is lower than for long term bonds. The yield curve is therefore usually upward sloping, i.e. increases with time to maturity. The subjective difference between a 1 and 2 year bond at the present time, is usually a magnitude greater than the difference between the subjective difference in a 30 year and a 31 year bond. However, it stands to reason that a long-term bond could be sold as a series of shorter term bonds (i.e. What is the difference between 1 30-year bond and 30 one-year bonds?). There must also be some expectation of rate changes that is factored into the yield curve. This is an assumption that can be made about treasury securities, that they are essentially the same instrument (in the secondary market) except for the term to maturity of the issued bond. The yield curve can then be plotted and some assumptions can be made, including that the short run bonds will pay a lower nominal interest rate than the long-term bonds. As a bond nears maturity it should, according to theory and at the limit, trade at par with currency of the same denomination. Problems arise when the underlying fundamentals of the economy change.

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