Incremental returns for treasuries

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edgeagg
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Joined: Tue Jan 23, 2018 1:27 pm
Location: WA-US

Incremental returns for treasuries

Post by edgeagg » Mon Oct 01, 2018 5:37 pm

Hello all,
I was trying to understand how to get an idea of the value of holding different treasuries to maturity. So, I was thinking of the following simple analysis and would appreciate your input (and spankings):

Base Data
The starting data are the basic Treasury Yield Curve Rates from the St Louis Fed that publishes time series of 3 month, 6 month, 1 year, 2 year, 3 year, 5 year, 7 year and 10 year treasury yield data.

Analysis

(1) Difference the rates between successive time series (eg: 6 month - 3 month, 2 year - 1 year, 3 year - 2 year,..) to compute spreads and then normalize spreads by the duration (3 months, 6 months, 12 months,....).
(2) Essentially this is approximating the first derivative of the yield curve to provide the duration adjusted yield of holding different bonds to maturity.

Does this make sense? I'll take my beatings like a man, if not and am always open to alternative suggestions.
thanks
ea
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EDIT: (1) This gives a number of curves that can be plotted against time. If the curve is near zero then that shows that there is very little incremental value in holding the investment to the next step up in maturity is decreasing.
(2) If a curve is declining, then that means that the value of holding the investment to the next step up in maturity is declining recently.
(3) If a curve is flat, then the time value of holding the investment to the next step up in maturity is flat (a linear yield curve).

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