FIN 370 Central Washington University Week 7 Yield Curve Control Discussion

Question Description

You are required to participate in the discussion with one original posting and at least one response/comment to your peer’s post to get full marks per discussion. Your posts should have no more than 300 words per post.

Pick at least one topic you wish to discuss:

TOPIC 1: Read the articles “The Yield Curve Is the Steepest It Has Been in Years. Here’s What That Means for Investors.” by Barron’s and “The Federal Reserve Tries to Tame the Yield Curve (Links to an external site.)” by Investopedia.
Discuss the following (Do your own research if necessary):

(1) Why the Yield curve is an important economic indicator?

(2) What are the implications for markets and investors of the widening gap between short-term and long-term yields?

(3) What is the “Yield Curve Control” (YCC) in connection with the yield curve, how does it work and what is it’s purpose?

TOPIC 2: Read the following articles “Federal Reserve sees interest rates near zero, at least through 2023” by PBS and “U.S. Interest Rates Are Rising. Why Emerging Markets Aren’t Worried—Yet” by Barron’s.

(1) What are the advantages and disadvantages of low or negative interest rates?

(2) Discuss monetary policy and its impact on the interest rates and inflation.

(3) Why rising interest rates are bad for the emerging markets? What are the risks?

Please also response to this Peer’s post:
Topic 1
The yield curve is an important economic indicator because it identifies future economic scenarios.A recession warning is seen when the curve “inverts” where the long-term yields fall below short term yields. Investors can expect a stronger growth in the U.S. and the possible future inflation as the curve gets steeper.
There are three implications for markets and investors of the widening gap between short-term and long-term yields. The steady rise in yields could possibly aid a prevention of reactionary panic that caused a spike in U.S. treasury yields. Also, the bank stocks can continue to have strong performances as the yield curve steepens giving a boost to the banks’ net interest margins. Lastly, investors will be drawn back into the market as treasury yields become high enough to strengthen their confidence.
The Yield Curve Control is targeting a longer-term interest rate by a central bank and then buying or selling as many bonds to hit that rate target. The YCC could help prevent an economic recession. It may be more effective to stimulate the economy by keeping longer-term rates down as short-term interest rates reach close to zero.

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