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Yield Curve Construction with Treasuries

CFA® Exam, CFA® Exam Level 2, Fixed Income Securities

This lesson is part 10 of 17 in the course Fixed Income Part 1

The Treasury bond yield curve can be built from several different sources:

  • On the Run Treasuries: This entails plotting the observed yields from the most recently issued Treasuries.
  • On the Run + Selected Off the Run Treasuries: On the run issues may not cover the all time periods needed, particularly for longer maturities, so off the run issues may be incorporated into yield curve construction.
  • All Treasuries: This is a complete picture of the yield curve, but some issues, such as those which are callable, would need to be excluded.
  • Treasury Coupon STRIPS (separate trading of registered interest and principal securities): interest coupon STRIPS can be used to construct the yield curve, but this approach has the following deficiencies:
  • Liquidity: Lower than liquidity of coupon paying bonds.
  • U.S. Taxes: Tax treatment may be different for STRIPS.
  • Foreign Taxes: Principal strips and coupon strips may be treated differently for taxation purposes in foreign countries.
Previous Lesson

‹ Factors Driving Treasury Investment Returns and Bond Price Risk

Next Lesson

LIBOR Swap Rate Curve ›

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In this Course

  • CFA Level 2: Fixed Income Part 1 – Introduction
  • Principles of Credit Analysis
  • High Yield Corporate Debt (aka Junk bonds)
  • Analyzing Credit of Asset Backed Securities
  • Analyzing Credit of Municipal Bonds
  • Sovereign Debt
  • Three Shapes of the Yield Curve
  • Parallel and Non-parallel Shifts in Yield Curve
  • Factors Driving Treasury Investment Returns and Bond Price Risk
  • Yield Curve Construction with Treasuries
  • LIBOR Swap Rate Curve
  • Theories of the Term Structure of Interest Rates
  • Key Rate Duration
  • How to Calculate Interest Rate Volatility?
  • Benchmark Yield Spreads
  • Valuing an Option Embedded Bond using Binomial Interest Rate Tree
  • How to Price Convertible Bonds?

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