The U.S. Treasury yield curve: 1961 to the present

Abstract

The discount function, which determines the value of all future nominal payments, is the most basic building block of finance and is usually inferred from the Treasury yield curve. It is therefore surprising that researchers and practitioners do not have available to them a long history of highfrequency yield curve estimates. This paper fills that void by making public the Treasury yield curve estimates of the Federal Reserve Board at a daily frequency from 1961 to the present. We use a wellknown and simple smoothing method that is shown to fit the data very well. The resulting estimates can be used to compute yields or forward rates for any horizon. We hope that the data, which are posted on the website http://www.federalreserve.gov/pubs/feds/2006 and which will be updated quarterly, will provide a benchmark yield curve that will be useful to applied economists. r 2007 Elsevier B.V. All rights reserved.JEL classification: G12; E43

Term Structure Analysis with Big Data

“…In terms of practical relevance, this finding provides support for the widely used synthetic U.S. Treasury yields constructed by Gürkaynak et al (2007Gürkaynak et al ( , 2010.…”

“…Following Gürkaynak et al (2007), securities with less than three months to maturity are excluded from our sample, as the implied yield on these securities often display erratic behavior. 4…”

“…The main motivation of Gürkaynak et al (2007) to prefer the Svensson (1995) curve over the simpler specification of Nelson and Siegel (1987) is that the Svensson (1995) curve allows for an additional 'hump' that helps fit U.S. bond yields beyond the ten-to fifteen-year maturity spectrum. 21 The AFNS model may potentially also benefit from additional dynamics to fit long-term Canadian bond prices, as its factor loadings for the slope and curvature factor decay to zero as maturity approaches infinity.…”

“…In the past, this separation was especially convenient because of the computational burden of working with large data sets of actual bond prices. Indeed, the widespread popularity of the two-step approach has implied that the estimation of these synthetic zero-coupon yields typically is taken for granted and given little consideration, despite the challenges documented in the construction of these synthetic yields in, e.g., Bliss (1996) and Gürkaynak et al (2007Gürkaynak et al ( , 2010. Furthermore, some researchers such as Dai et al (2004) and Fontaine and Garcia (2012) have argued that synthetic interpolated yields can erase interesting bond pricing information by excessive smoothing and may even introduce unnecessary measurement error to the data.…”

“…2 In the creation of interpolated nominal U.S. Treasury yield curves, Gürkaynak et al (2007) generally exclude the two most recently issued securities, i.e. the "on-the-run" and "first off-the-run" bonds, which often trade at a premium.…”