Finance and Economics Discussion Series (FEDS)
Using Treasury STRIPS to Measure the Yield Curve
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.
Keywords: Treasury STRIPS, Yield Curve, Treasury market
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