Treasury Yield Curve

Treasury yield curve or treasury zero coupon yield curve is the term structures of treasury yields-to-maturity. The yield is also called the zero coupon rate or the implied forward rate.

Treasury yield curves are bootstrapped from treasury benchmark curves that contain the most actively traded treasury bills or bonds at some maturities.

The zero coupon rate or zero rate, the most common form of interest rate, is the yield implied by the different between a zero coupon bond's current purchase price and the value it pays at maturity. A given zero rate applies only to a single point in the future and, as such, can only be used to discount cash flows occurring on this date. Zero rates can have different compoundings: continuously, semi-annually, annually, etc. The continuously compounded zero rate has the simplest expression and computation mathematically.

The discount factor for a corresponding term to maturity is equal to exp(-Z*T), where Z is the continuously compounded zero rate from 0 to T and T is the maturity date. The calculation of zero rates and their associated discount factors is essential for asset pricing.

Treasury yield curves or treasury zero-coupon yield curve are derived from these benchmark bills/bonds. The main interest in the market to estimate treasury yield curves is to provide insights into the evolution of market expectations. It is considered essential that the information contained in these bonds be incorporated into the yield curve construction.

Unfortunately both zero rates and discount factors prevailing in the market are not observable for all maturities. FinPricing bootstraps treasury benchmark curves to generate treasury yield curves (or treasury zero rate curves). All the yield curves generated by FinPricing are continuously compounded.

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