Economics 434 Theory of Financial Markets - PowerPoint PPT Presentation

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Economics 434 Theory of Financial Markets

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  1. Economics 434Theory of Financial Markets Professor Edwin T Burton Economics Department The University of Virginia

  2. Sidebar Comments • The notion of default free • Not the same as risk free • Usual example is ‘sovereign debt’ • Sovereign debt • Example: US Treasury debt • Default free if you have your own currency (You simply print dollars to pay bills) • California does not have its own currency: not default free • What about the Eurozone • Motivation for economic integration • Distinction between the European Union and the Eurozone • When the Euro came into existence (2001) interest rates across the Eurozone converged. • The crisis emerged when rates began to diverge after 2008 • Why didn’t Greece simply default? • What is happening now?

  3. Summary of US Treasuries • Treasury Bills • Three Month • Six Month • Year Bill • Notes: (more than 1 yr; not more than 10 yrs) • 2, 3, 5, 7, 10 • Bonds (more than 10 yr in iniitial maturity) • 30

  4. National Debt in US • $ 16,059,652,703,000. (16 trillion) • Funded debt: $ 10.2 Trillion (GDP 15.1 Trillion)

  5. Yield curve Junk bonds Rates Maturities Corp Bonds Treasuries

  6. The End