Gilt-Edged Market

9.3 The zero-coupon (or spot) yield curve

The zero-coupon (or spot) yield curve plots zero-coupon yields (or spot yields) against term

to maturity. A zero-coupon yield is the yield prevailing on a bond that has no coupons. In

the first instance if there is a liquid zero-coupon bond market we can plot the yields from

these bonds if we wish to construct this curve. However, it is not necessary to have a set of

zero-coupon bonds in order to construct the curve, as we can derive it from a coupon or par

yield curve; in fact in many markets where no zero-coupon bonds are traded, a spot yield

curve is derived from the conventional yield to maturity yiel