Questions tagged [yield-curve]

A yield curve is a plot of yields for various bonds (often government bonds) versus the bonds' maturities. We also often plot swap and other LIBOR rates to get the (related) swap curve.

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Matching the yield on a bond with the zeroRate on a curve in Quantlib

I am using QuantLib to generate a US Treasury curve from 1y, 3y, 5y, and 10y yield quotes. However, after building the curve and running zeroRate on it, it ...
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Par Yield, Bond Yield and Zero Rate

In the Hull's book, chapter 4.4, it says : The par yield for a certain bond maturity is the coupon rate that causes the bond price to equal it's par value. Then for this question (4.18) : “...
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Deriving the series for federal funds rate expectations using federal funds futures

I am trying to derive the monthly series from 2000-2019 of the expectations of federal funds rate based on federal funds futures. How should I proceed? Where to look? Is it possible?
user508281's user avatar
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daycount of the yield curve

Complete characterization of an interest rate requires a few elements: day count compounding frequency the rate itself start date and end date That said, I notice that day counts are never displayed ...
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Yield Curve Flattening Trade

Relatively simple question, but came upon it in class and have not been able to come up with an answer: The two-year bond yield is equal to 4% while the 10-year one is equal to 10%. You want to put ...
elchevy's user avatar
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Estimating a Yield Curve in a country without Bond Stripping

I am currently working under estimating a Yield Curve. From my understanding common procedures to construct a yield Curve like Nelson Siegel have the input of a series of different zero rates and ...
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Convexity in interest rate curve bootstrapping

Whether the bootstrapping is a multicurve one or not, one can use futures quotes. One link these quotes to corresponding (synthetic) forwards (that can be expressed as known functions of zero-coupons) ...
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Retrieve SYC from Par yields

Currently studying about fixed income and the construction of the Spot yield curve, but I do not know whether my intuition is right. Suppose we have a firm that has traded Bond for different ...
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What's Hedge Curve Template

what's a Hedge Curve Template (HCT)? How does it help value a bond? It appears to me it normally is used together with another curve where x,y-axis being maturity dates and discount factors ...
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PCA predicted yield curve moves do not match (closely) realized yield curve moves

I have a need to set-up a methodology to decompose the x-day yield curve moves into its underlying (3) PCAs. Specifically, for an example, to generate the 1-day moves in the EUR-swap yield curve; ...
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Duration and yield

I have some basic questions about mainly duration and yield. 1) Almost no-one defines what yield they are talking about when talking about duration and discount rate, I've seen some talk about ...
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Raw interpolation when the desired term is out of the know originals

I was reading this paper regarding the yield curve construction and was programming the Raw Interpolation algorithm (page 7 equation 6) however I was wondering how to use the formula when the desired ...
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stress testing zero coupon yield curve

i'm currently trying to stress test the zero coupon yield curve using daily observations from 2003 to 2019. Each Zero coupon yield curve originate from an actuarial curve with 37 tenors that range ...
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Concentration risk in Rates

What are some good ways to assess the concentration risk for a rates curve or by currency when volumes traded by instrument are not easily available? For ex, if for some currencies, the PV01 at ...
access_nash's user avatar
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2 answers
219 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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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) ...
access_nash's user avatar
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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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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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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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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 ...
Michael Clinton's user avatar
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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 ...
TryingtobeQuant's user avatar
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3 answers
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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 ...
ensabahnur's user avatar
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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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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 ...
TryingtobeQuant's user avatar
6 votes
1 answer
303 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-...
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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 ...
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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 ...
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6 votes
3 answers
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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 ...
Jamie Ballingall's user avatar
2 votes
1 answer
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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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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 ...
Lopo's user avatar
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Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
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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 ...
BrownianBread's user avatar
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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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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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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 ...
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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 ...
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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?
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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 ? ...
Jiem's user avatar
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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 ...
dayum's user avatar
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3 answers
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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 ...
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4 votes
1 answer
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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 ...
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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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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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0 answers
58 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 ...
Dhruv Mahajan's user avatar
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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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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 ...
Dhruv Mahajan's user avatar
1 vote
1 answer
232 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 ...
Daniel's user avatar
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1 answer
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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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1 answer
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Yield curve trading

I have a problem in understanding following strategies: bullish flattening trades bearish flattening trades bullish steepening trades bearish flattening trades Can anyone give me an explanation ...
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2 votes
2 answers
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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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