Question

Go to the St. Louis Federal Reserve FRED database, and find data on net worth of households and nonprofits (HNONWRQ027S) and the $10-$year U.S. Treasury bond (GS$10$). For the net worth indicator, adjust the units setting to “Percent Change from Year Ago,” and for the $10$-year bond, adjust the frequency setting to “Quarterly.”

a. What is the percent change in net worth over the most recent year of data available? All else being equal, what do you expect should happen to the price and yield on the $10$-year Treasury bond? Why?

b. What is the change in yield on the $10$-year Treasury bond over the last year of data available? Is this result consistent with your answer to part (a)? Briefly explain.

Short answer

a) The bond's price will rise and the yield of the bond will decrease.

b) The yield has decreased, which is consistent with the preceding part's statement.

Step-by-step solution

Part(a) - Step 1: To explain

Percentage change in net worth over the last year, as well as the price and yield on the $10$-year Treasury Bond's future prospects.

Part (a) - Step 2: Explanation

From the third to the fourth quarters of $2017$, the household's net worth increased from$\$7.60$percent to$\$7.82$percent. It demonstrates a rise in household income.

The demand for the $10$-year Treasury Bond will rise as people's net worth rises, indicating that they have more money to save and invest. Because of the increased demand for the bond, the price of the bond will rise. The bond's yield will decrease as the bond's price rises.

As a result, the bond's price will rise but its yield will fall.

Part (b) - Step 3: To explain

Changes in the $10$-year Treasury Bond yield during the last year, and whether or not they are compatible with the previous part's response.

Part (b) - Step 4: Explanation

From the third quarter of $2017$through the fourth quarter of $2017$, the Treasury Bond yield varied between $\$0.68$percent and$\$0.24$percent. It shows a decrease in the bond's yield. It's in line with the previous section's conclusion.

As a result, the yield has decreased, which is consistent with the preceding part's statement.