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Using Treasury STRIPS to measure the yield curve

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  • Brian P. Sack

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, have a complete range of maturities, and are fungible, which appears to make the coupon STRIPS yield curve relatively smooth. Yields on coupon STRIPS are compared to the zero-coupon yield curves derived from notes and bonds under the Nelson-Siegel and the Fisher-Nychka-Zervos methods. 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

  • Brian P. Sack, 2000. "Using Treasury STRIPS to measure the yield curve," Finance and Economics Discussion Series 2000-42, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2000-42
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    References listed on IDEAS

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    1. Dominique Dupont & Brian P. Sack, 1999. "The Treasury securities market: overview and recent development," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 785-806.
    2. Jordan, Bradford D. & Jorgensen, Randy D. & Kuipers, David R., 2000. "The relative pricing of U.S. Treasury STRIPS: empirical evidence," Journal of Financial Economics, Elsevier, vol. 56(1), pages 89-123, April.
    3. Mark Fisher & Douglas Nychka & David Zervos, 1995. "Fitting the term structure of interest rates with smoothing splines," Finance and Economics Discussion Series 95-1, Board of Governors of the Federal Reserve System (U.S.).
    4. Duffie, Darrell, 1996. "Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June.
    5. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
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    Cited by:

    1. Refet S. Gürkaynak & Andrew T. Levin & Andrew N. Marder & Eric T. Swanson, 2007. "Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 11, pages 415-465, Central Bank of Chile.
    2. Gurkaynak, Refet S. & Sack, Brian & Wright, Jonathan H., 2007. "The U.S. Treasury yield curve: 1961 to the present," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2291-2304, November.
    3. Bowsher, Clive G. & Meeks, Roland, 2008. "The Dynamics of Economic Functions: Modeling and Forecasting the Yield Curve," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1419-1437.
    4. Teplova, Tamara V. & Rodina, Victoria A., 2021. "The reinvestment risk premium in the valuation of British and Russian government bonds," Research in International Business and Finance, Elsevier, vol. 55(C).
    5. Brian P. Sack, 2000. "Deriving inflation expectations from nominal and inflation-indexed Treasury yields," Finance and Economics Discussion Series 2000-33, Board of Governors of the Federal Reserve System (U.S.).
    6. Robert Brooks & Pavel Teterin, 2020. "Samuelson hypothesis, arbitrage activity, and futures term premiums," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1420-1441, September.
    7. Olivia S. Mitchell & Christopher C. Geczy & Robert Novy-Marx & Raimond Maurer & Donald E. Fuerst & Christopher M. Bone & Donald J. Segal & Martin G. Clarke & Frank J. Fabozzi & Deborah Lucas & David F, 2013. "Technical Review Panel for the Pension Insurance Modeling System (PIMS)," Working Papers wp290, University of Michigan, Michigan Retirement Research Center.
    8. Livingston, Miles & Wu, Yanbin & Zhou, Lei, 2019. "The decline in idiosyncratic values of US Treasury securities," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    9. de Kort, J. & Vellekoop, M.H., 2016. "Term structure extrapolation and asymptotic forward rates," Insurance: Mathematics and Economics, Elsevier, vol. 67(C), pages 107-119.
    10. Refet S. Gürkaynak & Brian P. Sack & Eric T. Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    11. Gann, Philipp & Laut, Amelie, 2008. "Einflussfaktoren auf den Credit Spread von Unternehmensanleihen," Discussion Papers in Business Administration 4231, University of Munich, Munich School of Management.

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    Keywords

    Interest rates; Government securities;

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