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Questions tagged [yield-curve]

The tag has no usage guidance.

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2answers
37 views

Cash vs Deposit Rates

When constructing a yield curve for derivatives purposes, what is the difference between cash and deposits rates?
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3answers
83 views

PCA for Risk bucketing

I'm working on a project to justify the use the certain tenors (2y, 5y, 10y, 30y) for risk bucketing. I'm a little stuck after calculating the principal components. Just to describe my approach- a) ...
2
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0answers
85 views

How to interpret DV01 in terms of PCA equivalent?

I have computed the PCs for daily changes in the UST yield curve over the last 5 years using the covariance matrix and can explain 94% of the variance using the first two components, which is good ...
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0answers
72 views

Curve Building + Swap Pricing [duplicate]

Assume Swap means a USD Swap with standard conventions (semi-annual fixed payments and quarterly floating payments, etc).
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0answers
75 views

Interview question on interest rate spread trade

Consider this interview question: Tell me how you'd construct a risk neutral cross country trade on the 2 year – 10 year interest rate spread in Germany and the U.S. What does "risk neutral" mean ...
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0answers
43 views

Creating yield curve from exchange-listed products only?

For use in subset of my thesis, I’ve been given some exchange market data for several exchange-listed products, including Eurodollar rate futures as well US treasury futures and Fed Funds futures. I ...
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0answers
57 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
3
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3answers
140 views

What's the logic behind 3-10 UST yield inversion predicting recession?

Is there causality, behavioral or logical explanation behind this indicator or is it just purely an observation based on correlation? My guess is that there are existing derivatives with clauses that ...
3
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1answer
397 views

What does instantaneous forward mean?

Could you please help me to understand meaning of instantaneous forward rate? I mean economic interpretation at basic level. What is it used for? How can i derive it from zero rate/price? Thanks
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0answers
24 views

Bond Index Return from Yield Curve Data [duplicate]

I am trying to compare fund returns with benchmark returns. I have some yield curve data (some of them calculated by Bloomberg) but not bond price or return data. Is there any way to get bond returns ...
4
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1answer
83 views

No-arbitrage in term-structure models

I am a bit confused about what the implication of "no-arbitrage" in popular term struchture models (such as affine term struchtre models or HJM models) are? Is it solely a restriction on the cross-...
2
votes
1answer
84 views

Construct a butterfly interest rate portfolio to eliminate PCA exposures

I have data from 2012 to 2016 for interest rates whose term range from 2 month to 30 years, a total of 10 Principal components can be calculated. Then I want to construct a portfolio, $$WFLY = w_1 *5Y ...
2
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2answers
116 views

Reconstruct yield curve from principal components

I am currently building a model which aim is to model shocks to the yield curve (i.e. 25bps hike in the short rate). Currently I am looking at a swap curve from which I derive the PCs. Assessing the ...
4
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3answers
354 views

Why 10-year versus 2-year spread?

I occasionally see the 10y-2y spread referenced as a recession predictor. See, e.g., https://seekingalpha.com/article/4201787-current-slope-yield-curve-tell-us Why 10y minus 2y? Specifically, why use ...
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1answer
93 views

Duration split: treasury curve vs spread duration

I am looking at corporate bond (FR0013367620) in Bloomberg for which I have these values: DUR_ADJ_MID (modified duration performed using the yield to worst): 6.649 DUR_ADJ_OAS_MID (security's price/...
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1answer
39 views

Relation Between Yield Curve, First Order Derivative of YC and Forward Rate

I'm reading the book, "Derivatives Analytics with Python" by Yves Hilpisch. In an application of calibration of CIR85 process for the short-term interest rate. I found some codes which can be ...
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1answer
303 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
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1answer
166 views

ESTER replacement for EONIA/EURIBOR

Does anybody know what impact the replacement of EONIA with ESTER ( Euro Short TErm Rate ) will have on discounting existing or new derivatives once EONIA will be restricted as of Jan 2020? I'm ...
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0answers
35 views

Using above par zero coupon bond to build a zero coupon curve

Should I discard bonds above par (zero coupon bond with market price over par value) when I build a zero coupon curve? Most of the academic textbooks use bonds below par as inputs to build Zero ...
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3answers
140 views

YTM of “very-seasoned” bond issues

There is a liquidity premium between on-the-run treasury issues and off-the-run issues with similar characteristics. This is why when building a yield curve, typically on-the-run issues are used to ...
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0answers
61 views

Strategy in steepening curve environment, stable spreads - HotS interview problem

The following problem was found in "Heard on the Street": You construct a yield curve for (coupon-bearing) treasuries. A particular five-year corporate zero-coupon bond has a default risk ...
0
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1answer
73 views

Zero Coupon Curve and Floating Rates Notes pricing

Simple question: Can I use a Zero Coupon Curve (using Treasury or Swap Curve) to price floating rates notes (FRN)? I am building a classic Zero Coupon Curve, however I wonder if I can use it to ...
1
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1answer
113 views

Curve steepner and convexity

Can someone please explain why a curve steepener trade has a negative convexity? And are the gains from the steepness of the curve offset by the negative convexity?
0
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1answer
66 views

Spreadlock derivatives

I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
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0answers
80 views

basic difference between interest rate models

I am reading up on interest rate models, but currently confused about difference in the two types of models: no arb models like ho-lee, vasicek etc. others like nelson siegel, pca models etc. While ...
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2answers
393 views

Discount Factors to Zero Rates

I have obtained a Ibor-6Months curve using bootstrapping techniques. For the short-term of the curve I used spot, for the middle-term FRAs and for the long-term IRS. The curve that I have obtained is ...
2
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1answer
293 views

Duration: Parallel shift in yield curve assumption

General Intro I'm trying to really understand the assumptions of dollar duration for a portfolio of bonds. In particular I don't fully understand that the assumption that there are parallel shifts ...
3
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1answer
903 views

Dual Curve Bootstrapping - When to OIS discount?

I am a new quant and I am trying to understand some of the specifics of dual curve bootstrapping. For concreteness, suppose I want to build a Libor forward curve. From what I understand OIS ...
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0answers
17 views

How to compute historical bond drawdowns from yields

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. However, the picture I get looks a bit ...
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0answers
34 views

Understanding QuantLib qlYieldTSForwardRate

I'm trying to understand the QuantLibXL function qlYieldTSForwardRate() but the QuantLib manual is not of much help so I'm hoping to find answers here. I think I ...
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0answers
66 views

How is the integral relationship between current yield curve and forward yield curve derived?

$$y(\tau) = \frac{1}{\tau} \int_{0}^{\tau} du \Big(f(u)\Big)$$ As far as I understand the forward rate is the future rate based on the expectation hypothesis. But it is unclear how many years into the ...
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0answers
31 views

Custom Frequency termstrc Package

Termstrc package in R by default uses yearly coupon frequencies. Dataset i am working with is semi-yearly coupon bonds. Here are the variables it takes into the model ...
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0answers
87 views

Relative order of curve for coupons for Upward Sloping Yield

Why would the forward curve be above zero and coupon bond yield be at the bottom for a sloping up yield curve.
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0answers
40 views

How to find the maximum clean price during lifetime of a bond

I'm trying to find a solution to following question: If I'm buying a bond and assume an upward sloping yield curve, than this bond will (under certain circumstances) experience price gains during his ...
2
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2answers
172 views

Corporate Bond Yield Curve

I am an intern in a mutual fund and they have asked me to create in house yield curve for different type bonds in their portfolio I need to know on what basis are different yield curves made. For ...
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1answer
65 views

Construction of synthetic deposits

I'm looking at the paper "Everything You Always Wanted to Know About Multiple Interest Rate Curve Bootstrapping But Were Afraid To Ask". It describes how to construct synthetic deposits in order get a ...
2
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1answer
142 views

Why we should specify the evaluation date when using Quantlib yield curve? And why updating the evaluation Date is time consuming

I was runing some tests using the yield curve structure in quantlib mainly: PiecewiseYieldCurve It seems that I have to fix the evaluation date using such a line : Settings::instance().evaluationDate(...
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2answers
371 views

Principal component analysis for yield curve

I have Treasury yield data across 11 maturities for past 1 year. I have used a code in MATLAB for PCA on change in yield curve. Now, I have covariance matrix of daily/monthly yield curve changes, ...
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1answer
534 views

Details of calibration of Hull-White model

Consider the one-factor Hull-White model $$ \mathrm{d}r(t) = (\theta(t)-\kappa r(t))\mathrm{d}t + \sigma\mathrm{d}W(t) $$ When one calibrates the model to market data one chooses $$ \theta(t) = \...
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2answers
81 views

Inverted Yield Curve [closed]

In an article of FT today, Matthew Klein writes, "The yield curve represents the cost of borrowing over different amounts of time. Lenders generally prefer getting their money back sooner rather than ...
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0answers
116 views

Yield curve estimaton using linear regression

Assuming that there are not any zero coupon bonds in the market, then someone has to use the prices of regular bonds with same maturity and characteristics (risk,issue etc.) to obtain the yield curve. ...
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1answer
668 views

High convexity vs low convexity bond definition

Isn't high convexity always better than low convexity bond from the formula that $$\frac {ΔB} B=-D \frac {Δy} {1+y} + \frac 1 2 CΔy^2$$ Since $\frac 1 2 CΔy^2$ is positive no matter what so the price ...
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64 views

Methods to generate multiple yield curves

I need to run a model to value bank mortgages using a Monte Carlo simulation, where mortgages will be valued based on future interest rates. To that end, I build a yield curve taking rates of US ...
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2answers
404 views

Accrual in Default Derivation of Credit CDS Curve

In Trading Credit Curves Part I by JP Morgan we have that each point on a credit (CDS) curve represents: $$PV(\text{Fee Leg}) = PV(\text{Contingent Leg})$$ which is $$S_n \sum_{i=1}^{n}\Delta_i ...
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0answers
653 views

Constructing zero curve from Overnight Index Swaps (OIS) and Interest Rate Swaps (IRS)

Let's assume a task to build a zero curve from two sets of raw interest rates: set one contain 12 Overnight Index Swaps with maturities 1 month, 2 months, ... , 12 months; set two contains 7 Interest ...
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1answer
271 views

Build a swap curve / Swap Hedging

I’m going through the exercise of building a swap curve. I understand I need libor rates for the short-end, futures for the medium-end, and swap rates for the long-end. Should I be using bid, mid, ...
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1answer
62 views

Spot period considerations in yield curves

Textbook explanations of yield curve modelling discuss bootstrapping or other methods. If we take sovereign bonds for deriving the curve, we would get price data from a market data provider like ...
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2answers
81 views

Intuitive explanation of geometric mean

Suppose that the 10 Year Treasury Yield Rate varies every trading day during the year X1 (which in practice is accurate) what is the intuitive explanation behind calculating the geometric mean using ...
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0answers
45 views

Why are sinkable bonds excluded from bootstrapping schemes?

In choosing a bond-universe out of a large pool of bonds, (say, AA and up tech-bonds), I've seen in various places a recommendation to discard callable, putable and sinkable bonds. I can see why an ...
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1answer
76 views

Deriving the Forward Rate Formula from the Expectation Hypothesis

The Expectation Hypothesis (EH) states that the current spot yield for any of the maturities is the geometric average of current and future short rates. $$\Big(1 + y(t=0, m=\mu) \Big)^{\mu} = \prod_{t=...