Suppose that, in response to the coronavirus, the U.S. federal government significantly lowers the individual income...
Suppose that, in response to the coronavirus, the U.S. federal government significantly lowers the individual income tax rate during 2020. How do you think this policy would affect the yield on a10-year U.S. Treasury note? Explain your answer.
If this happens, what is likely to happen to the yields on 10-year AAA municipal bonds relative to the yield on a 10-year Treasury note?
Homework Answers
The effects of reduction on income tax will decrease the yields of 10 year Treasury bonds.
This is because even though it will Leave people with more of disposable income, A income tax rate cut will spooke the bond yield as Investors will be more fearful of monetary easing policy as they fear an impending recession and adverse events.
On 10 year AAA Municipal bonds, Reducing income tax rate will decrease ITR(Implicit tax rate) which is used as a spread for municipal bonds.
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