1
$\begingroup$

I am just trying to get an explanation as to why Spot Rates can't be used to create a yield curve for Zero-Coupon Bonds? Or if they can, would it involve Bootstrapping?

Thanks

$\endgroup$
7
  • $\begingroup$ Can you clarify on your question? Spot rates ARE zero coupon rates, which are yields of zero coupon bonds. $\endgroup$
    – Helin
    Jun 10, 2015 at 19:08
  • $\begingroup$ @haginile Thanks. I was just wondering how Spot Rates are used to create Zero-Coupon Yield Curves? And, I know we discussed this. However, I was wondering if there is a website or Database with accessible Zero-Coupon Bond Yield Curve Data for currencies such as AUD, Euro and GBP? My aim with regards to both these questions is basically to find the yields for zero-coupon bonds of various maturities across various Currencies. $\endgroup$
    – Jojo
    Jun 10, 2015 at 21:23
  • 1
    $\begingroup$ Hi @Jojo, like gt6989b mentioned below, zero coupon yields are usually implied from tradable instruments. The US and UK market have STRIPS, which are zero coupon bonds, but their yields are almost never used for analytical purposes. Instead, zero yields are implied from coupon Treasuries for the Treasury, and from futures/swaps/OIS for the swap mkt. ECB does publish their yield curve data too ecb.europa.eu/stats/money/yc/html/index.en.html, and here's BOE bankofengland.co.uk/statistics/pages/yieldcurve/default.aspx. $\endgroup$
    – Helin
    Jun 10, 2015 at 23:51
  • $\begingroup$ @haginile Thanks. As I asked gt6989b below, I've actually these two URL's. However, they only provide Spot Rates from which I would have to derive Zero-Coupon Yield Curves. So my question is, is there a database where there are specifically Zero-Coupon Bond Yield Curves available? I'm basically looking to forgo doing the interpolation etc. myself. $\endgroup$
    – Jojo
    Jun 11, 2015 at 1:51
  • $\begingroup$ i'm still not sure about your question... The spot rates, connected together, IS the zero coupon yield curve. $\endgroup$
    – Helin
    Jun 11, 2015 at 10:16

1 Answer 1

1
$\begingroup$

If you want a zero coupon curve, you can interpolate it given the spot rates. This is typically not done, since spot rates are not traded on the market. Instead, cash instruments are used in the near term, FRAs and futures - in the medium-term, and swaps in the long term to imply rates at specific times, and an interpolation (and extrapolation) scheme is imposed to create the values for arbitrary points in time.

Hagan and West in a classic paper show that the simplest sane interpolation scheme is piecewise constant forwards.

As for where one may get a series of such rates, I would try the CRVF function on the Bloomberg for the specific country of interest. Just make sure you pick the calibrated zero rates curve.

$\endgroup$
3
  • $\begingroup$ Thanks. So there are specifically Zero-Coupon Bond Yield Curves available? I'm basically looking to forgo doing the interpolation etc. myself. $\endgroup$
    – Jojo
    Jun 11, 2015 at 1:49
  • 1
    $\begingroup$ @Jojo yes, Bloomberg should have a bunch of calibrated curves $\endgroup$
    – gt6989b
    Jun 11, 2015 at 2:45
  • $\begingroup$ Thank you for that. I was just wondering if you know of a cheaper database that I could access? $\endgroup$
    – Jojo
    Jun 11, 2015 at 13:33

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.