Bond Pairs and the Term Structure

J Financ Res. 2024;1–34.

34 Pages Posted: 2 Oct 2024

See all articles by Antonio Diaz

Antonio Diaz

University of Castilla-La Mancha

Miles Livingston

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 12, 2020

Abstract

In the US Treasury bond market, the existence of a bond pair (two bonds with the same maturity but different coupons) is shown to allow the computation of the zero-coupon interest rate for that maturity directly from the bond prices, as well as the zero-coupon interest rates for adjacent maturity bonds with the same number of coupon payments. Since the 2008-2009 financial crisis, the number of bond pairs has increased, allowing for the direct estimation from bond prices of the zero-coupon interest rates for an average of 180 individual maturities for bond maturities between 6 months and 30 years. The bond pairs approach outperforms popular yield-curvefitting models in accurately reproducing original bond prices.

Suggested Citation

Diaz, Antonio and Livingston, Miles B., Bond Pairs and the Term Structure (January 12, 2020). J Financ Res. 2024;1–34., Available at SSRN: https://ssrn.com/abstract=4941810 or http://dx.doi.org/10.2139/ssrn.4941810

Antonio Diaz

University of Castilla-La Mancha

Miles B. Livingston (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainsville, FL 32611-7168
United States
352-392-4316 (Phone)
352-392-0301 (Fax)

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