Analysing and Comparing the Yield Curve Risk of Interest Rates. Evidence From the Swedish Futures Market Based on 3 and 6 Month Eurodollar Futures Contract

In this article, we analyse and compare the yield curve risk of interest rates. Our evidence is from the Swedish futures market based on 3 and 6 month Eurodollar futures contract. The shape of the yield curve can be upward, flat and downward. But what is a yield curve? It is a line that shows the short and long-term interest rates with different maturity dates. It shows lending rates and it is used from the Federal Reserve Bank to predict changes in output and economic growth. It gives the investor a snapshot regarding the direction future of the interest rates and the economic activity. Yield curve is used to understand the business cycle of the economy by spotting the recession and expansion phases. When the yield curve becomes flatter, then, the spread between short and long – term rates is eliminated and becomes narrow. In contrast, when the yield curve becomes steeper, then, the spread is widening. Interest rate is very important factor in the fixed – income industry. When interest rates fall, Eurodollar futures prices increase and when interest rates rise, Eurodollar futures prices decrease. We check the shifts of the yield curve per basis points. We check the effective duration of 3 and 6 month Eurodollar futures contract. We analyze the bond yields in relation to time to maturity. We check the difference between a long – term and a short – term Eurodollar future to see how the curve is changing. Different bond yields with different maturities are affecting the steepness of the yield curve and accordingly we can understand the cycle of the Swedish economy in terms of recession or expansion