On the BTP curve, we have the following Bonds (just showing you an extract)

enter image description here

I want to calculate z-spreads my self therefore I need the zero-coupon curve.

How do I go about doing this? Do I look at the yields on the strip curve on Bloomberg? For instance, if we take the BTPS 0.05 01/15/2023, next coupon date is 15th of Jan. How do I calculate the zero-coupon rate for this expiry?

Thank you


Many countries issue sovereign debt denominated in EUR. The common (but not universal) methodology is to treat only German sovereign debt as credit risk free, and all other countries as credit-risky. Italy is one of the PIIGS, but French or (non-EU) Romanian debt is credit-risky too. They're similar to corporate bonds.

The "z" in "z-spread" stands for "zero volatility", not "zero curve". If you're trying to calculate a "Z-spread" similar to Bloomberg's, then you can calculate (numerically) how much the EUR swap curve needs to be shifted in parallel in order for the bond cash flows discounted with the shifted swap curve to match the bond price.

Alternatively, you can compare you bonds' yield curve to German bonds' yield curve.

  • $\begingroup$ You mean non-EUR? Romania is in the EU (European Union) but has not adopted the Euro currency. $\endgroup$ Oct 5 at 19:59
  • $\begingroup$ Romania, Poland, Hungary, Czech Republic, etc all still have their own local currencies but issue some government debt in EUR. (Interestingly, sometimes it is local-law and sometimes external-law, slightly different yield curves). My point is that both Italy and Romania can default on their EUR sovereign debt, just as Germany and U.K. can default on their USD sovereign debt; whereas German sovereign EUR debt and Romanian sovereign RON debt are purely interest rates instruments. $\endgroup$ Oct 5 at 20:53
  • $\begingroup$ You wrote "non-EU"; I assumed it was a typo and you meant "non-EUR"? Because Romania is in the EU, that's all I was trying to say $\endgroup$ Oct 5 at 21:01
  • 1
    $\begingroup$ Of course since ~2007, thanks, I meant a country whose local currency is not the Euro yet, sorry. On the other hand, Russia is not EU, but sells EUR debt, on which it can default. It is also one of only 2 examples in history that I know of a country defaulting on sovereign debt in fiat local currency that it can freely print. $\endgroup$ Oct 5 at 21:15
  • $\begingroup$ @DimitriVulis - what was the other country that defaulted on local currency debt? Thanks. $\endgroup$
    – user42108
    Oct 5 at 21:38

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