Constant Maturity Yield Estimates for India: How Well Do They Depict the Term Structure?

Abstract

Central banks over the world report the base interest rates of their economy in terms of constant maturity yield curves. We introduce estimation of constant maturity yields for the Indian economy and through a rigorous comparison with zero-coupon yield estimates using econometric techniques, show that even in economies with underdeveloped and imperfect bond markets, it is possible to generate qualitatively accurate term structure estimates, based on secondary market yields.

Keywords: Emerging debt market, base interest rates, yield to maturity, zero-coupon yield

JEL Classification: E43, G10, C12