Gilt-Edged Market

for not using the bootstrapping method, in that the theoretical zero-coupon yields that are

obtained are too sensitive for real-world trading. Bond analysts often use sophisticated

curve smoothing techniques to get around this problem, and produce theoretical values

that are more realistic. This issue becomes more important when there are few bonds

between points on the term structure, such that linear interpolation between them pro-

duces inaccurate results. For example between the ten-year and thirty-year maturities there

are eight liquid gilts; between twenty and thirty years there are only two gilts. This is a key

reason for analysts to use more ...