Mastering Investment Banking Securities

14

Yield curves

Choice of financial instruments for yield curve construction

Yield curve construction methodology

The one-month curve construction

The basis curve construction

Shape of the yield curve

Graphical yield curve representation

INTRODUCTION

In the previous chapters on money market and capital market instruments – futures, FRAs and swaps – we often used the term implied interest rate or yield. It is a measure of profitability of an investment. The client will base his investment decision on how much yield a particular security will bring compared to other products in the market. Yields for different tenors (time periods) are needed by investment banks and other security issuers to price their products and calculate PV of future ...