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Par Yield Curve

What is a 'Par Yield Curve'

A par yield curve is a graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par.

Explaining 'Par Yield Curve'

Deriving a par yield curve is a step toward creating a theoretical spot rate yield curve, which is then used to more accurately price a coupon-paying bond. A method known as bootstrapping is used to derive the arbitrage-free forward interest rates.


Further Reading


The US Treasury yield curve: 1961 to the present
www.sciencedirect.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

The TIPS yield curve and inflation compensationThe TIPS yield curve and inflation compensation
www.aeaweb.org [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

The Japan Municipal Bond Yield Curve: 2002 to the PresentThe Japan Municipal Bond Yield Curve: 2002 to the Present
mpra.ub.uni-muenchen.de [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

Modelling the yield curveModelling the yield curve
academic.oup.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

A simple model of the taxable and tax-exempt yield curvesA simple model of the taxable and tax-exempt yield curves
academic.oup.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

The tax‐adjusted yield curveThe tax‐adjusted yield curve
onlinelibrary.wiley.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

How to read the future: the yield curve, affect, and financial predictionHow to read the future: the yield curve, affect, and financial prediction
read.dukeupress.edu [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

The yield curve as a leading indicator: Some practical issuesThe yield curve as a leading indicator: Some practical issues
papers.ssrn.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …

The yield curve and predicting recessionsThe yield curve and predicting recessions
papers.ssrn.com [PDF]
… This is a drawback of parameterized yield curves, and forward rates can be particularly affected … The estimated yield curve can be expressed in a variety of ways, including zero-coupon yields, par yields, and forward rates. Our yield curve fills a void in the academic literature …



Q&A About Par Yield Curve


How is the yield curve useful?

The yield curve allows investors to make better decisions about economic performance of a country's bonds.

Does the yield curve depict bonds with similar or different credit qualities?

The yield curve depicts bonds with similar credit qualities.

What shows the important characteristics of fixed income instruments on a yi eld c urve ?

T he shape o f t he c urve .  Q uestion 7

Why are bootstrapped interest rates considered arbitrage free?

Because they are derived from actual market data, and not based on an assumption of what the future will be like.

What is the yield curve primarily used for?

The yield curve tends to be used measure maturity of government securities over time.

How do you create a theoretical spot rate yield curve?

Bootstrapping is used to derive the arbitrage-free forward interest rates.

What is a par yield curve?

A par yield curve is a graph of the yields on hypothetical Treasury securities with prices at par.

What does bootstrapping entail?

Bootstrapping entails using historical data to estimate future interest rates.

Are there different types o f yi eld curves ?

Yes, there are different types . Q uestion 9