Using Treasury Strips to Measure the Yield Curve

35 Pages Posted: 8 Nov 2000

See all articles by Brian P. Sack

Brian P. Sack

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section

Date Written: October 2000

Abstract

Treasury STRIPS derived from coupon payments of notes and bonds provide an effective reading of the zero-coupon yield curve. Among their advantages, coupon STRIPS are zero-coupon securities and have a complete range of maturities. Moreover, the fungibility of coupon STRIPS appears to remove some of the idiosyncratic variation in the yields of individual Treasury notes and bonds, so that the coupon STRIPS yield curve is relatively smooth. Yields on coupon STRIPS are compared to the zero-coupon yield curves derived from notes and bonds under the Nelson-Siegel method and the Fisher-Nychka-Zervos method. The results point to some shortcomings of these approaches and indicate that the zero-coupon yield curve could be estimated more precisely from coupon STRIPS.

Suggested Citation

Sack, Brian P., Using Treasury Strips to Measure the Yield Curve (October 2000). FEDS Working Paper No. 2000-42, Available at SSRN: https://ssrn.com/abstract=249286 or http://dx.doi.org/10.2139/ssrn.249286

Brian P. Sack (Contact Author)

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section ( email )

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