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Pakistan Yield Curve: 2008 vs 2019

The yield curves of Pakistan in 2008 and 2019 had different shapes. In 2008, the yield curve had a positive slope, meaning longer-term bond yields were higher than shorter-term bond yields, indicating expectations of rising inflation and economic expansion. In contrast, the 2019 yield curve had a negative slope, known as an inverted yield curve, where shorter-term bond yields were higher than longer-term yields. This suggests expectations of lower inflation and a potential economic slowdown in the medium to long run. Comparing the two periods shows that Pakistan's yield curve changed from a positive to a negative slope between 2008 and 2019.

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Mateen Asif
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13 views3 pages

Pakistan Yield Curve: 2008 vs 2019

The yield curves of Pakistan in 2008 and 2019 had different shapes. In 2008, the yield curve had a positive slope, meaning longer-term bond yields were higher than shorter-term bond yields, indicating expectations of rising inflation and economic expansion. In contrast, the 2019 yield curve had a negative slope, known as an inverted yield curve, where shorter-term bond yields were higher than longer-term yields. This suggests expectations of lower inflation and a potential economic slowdown in the medium to long run. Comparing the two periods shows that Pakistan's yield curve changed from a positive to a negative slope between 2008 and 2019.

Uploaded by

Mateen Asif
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL MANAGEMENT

Comparison of yield curve of Pakistan: 2008 & 2019

Assignment # 2

[Link] Asif – 70078543 – MBA 2 YE


Question: Compare the Yield Curve of 2008 and 2019, Explain in your own
words.
Yield curve or term structure of interest rates represents the relationship between the
maturities and the yields of government securities. There are three main types of yield curve
shapes: normal, inverted and flat (or humped). A normal yield curve is one in which longer
maturity bonds have a higher yield compared to shorter-term bonds. An inverted yield curve is
one in which the shorter-term yields are higher than the longer-term yields. In a flat or humped
yield curve, the shorterand longer-term yields are very close to each other.

The graph of the above yield curve shows that the interest rate declines as the maturity time of
the bonds increases, For example a 1 year bond shows an interest rate of 13.7 % where as the
five and 10 year bond shows lesser interest rate, this shows that the Yield curve is negatively
sloped, the phenomena of a negatively sloped yield curve is known as inverted yield curve. The
economic interpretation of a negatively sloped yield curve is that it suggests suggests lower
inflation expectations and slowdown in economic activity in the medium to long-run.
In the graph above the data of 2008 yield is given against the Interest rate of one year and ten
year bonds, We can see that the yield of one year bond ( Represented in Black) is lower as
compared to that ten year bond ( Represented by the blue line). This phenomena where the
yield of longer maturity bonds are higher than the short maturity bonds is known as the
positively shaped or the upward slopping yield curve. A positively (or upward) sloping yield
curve is considered to be a signal of expansion of economic activities and rising inflation
expectations in the economy in near term.

References
[Link]

[Link]
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