Yield Curve

Also known as Yield to Maturity Curve, bond yield curve, coupon curve, redemption yield curve, coupon bearing yield curve


You can take any type (or class) of bond and plot the yield to maturity for different maturity dates.


Treasury Yield Curve

When people talk about the Yield Curve they usually mean the Treasury Yield Curve.
The treasury yield curve shows the relationship between the treasury securities (bills and bonds paying coupons) and maturity



The yield curve is the term structure of interest rates and is defined as the relationship between the maturity of a zero-coupon bond and the yield to maturity.
A yield curve is a plot depicting yield as a function of time to maturity.
The most important usage for the yield curve is to evaluate the bond market.


This is the relationship between the discount rate and the days to maturity (time)
The yield to maturity for a bond is used to indicate the total return from the bond when held to maturity.


This is the curve that most people are referring to when they talk about yield curves.



This curve consists of the points "yield" vs "maturity" (at whatever price it is quoted, there is only one current price).



Creating

This can be constructed by taking one class of bond (for example US Treasuries) and plotting the calculated yield to maturity for different maturity dates.
Visit the following website to see the latest yield to maturities for all the currently listed treasury securities

link - marketwatch.com/market-data/rates?mod=market-data-center 



Assumption

A big assumption is that it assumes that all the coupons are re-invested immediately at the coupon rate.
Obviously market rates will change over time so being able to re-invest at exactly this rate is unlikely.
This assumption creates reinvestment risk
Only bonds from the same class of issuer (and liquidity) are used
Everything is the same except the maturity dates.



The YTM of a coupon paying bond is a weighted average calculation of the zero-coupon rates up to maturity.
The later the coupon the more the weight is placed on it.



Important

The yield to maturity calculation assumes a flat yield curve.
Curves are normally plotted against whole years although the bonds used will rarely have an exact number of years to maturity.
On Bloomberg this is screen IYC



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