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Calculating the yield curve myself
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Calculating the yield curve myself

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Calculating the yield curve myself

IQFeed provides TNX.XO, which gives the 10 year yield, but only shows the bond pit hours as that's what CBOE calculates (7:20 to 14:00 CT). Is there a somewhat straightforward way to calculate the yield curve myself using some other data? I'm not sure what data I would need, and a search online does not provide much useful info. I may not have access to the necessary data for the calculations, but I would like to do this if possible. Any ideas?

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josh View Post
IQFeed provides TNX.XO, which gives the 10 year yield, but only shows the bond pit hours as that's what CBOE calculates (7:20 to 14:00 CT). Is there a somewhat straightforward way to calculate the yield curve myself using some other data? I'm not sure what data I would need, and a search online does not provide much useful info. I may not have access to the necessary data for the calculations, but I would like to do this if possible. Any ideas?

There are a few different ways to answer this question, that are all different depending on what you plan on doing with the information.

Curve is just the changes in yield as duration increases, IMO 5-30 does the best job at illustrating changes on an intraday level.

Here are a few simple tools :

Data and Chart Center

http://www.cmegroup.com/education/files/understanding-treasury-futures.pdf


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A quick estimate using the attached tool

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Sorry forgot to change the legend, duration is on the x axis.


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@addchild, thanks for your helpfulness as always. Something must be a little funny--when I put 126'11 for the 10 year, the implied yield is 2.94%, which is far above the actual 2.55 or so. Maybe the assumption of 6% coupon is not accurate? Honestly, I am just trying to become more knowledgeable about treasuries so I really don't know this right now. I will read more on this tomorrow--in the meantime, thanks for the info!


Last edited by josh; June 25th, 2013 at 02:12 AM.
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josh View Post
@addchild, thanks for your helpfulness as always. Something must be a little funny--when I put 126'11 for the 10 year, the implied yield is 2.94%, which is far above the actual 2.55 or so. Maybe the assumption of 6% coupon is not accurate? Honestly, I am just trying to become more knowledgeable about treasuries so I really don't know this right now. I will read more on this tomorrow--in the meantime, thanks for the info!


@josh The assumption of the 6% coupon is standard for all treasury products, and is used in determining the conversion factor to price out individual bonds.

The difference in yield could be from a poor assumption, but quite a bit of it is likely from market frictions, and the mechanics of the rates you are comparing.

The main difference being that the treasury yield is calculated from the "on the run" bond while futures price most closely tracks the "cheapest to deliver" bond.

The "on the run" (OTR) bond is the most recently issued bond of a certain maturity (this is what is sold at the treasury auctions).

The "cheapest to deliver" (CTD) bond is the least expensive bond that is suitable for delivery against the futures contract.

Because the treasury sells its products by yield through auctions, it leaves quite a few different bonds floating around, with many different yields and coupons. So to avoid excess demand for any individual issue the folks at the fed (or maybe it was the CBOT) came up with something called the conversion factor. Which is designed to adjust the price of the futures contract so that they are all of equal value (sort-of), and many bonds can be delivered against one contract.

http://www.cmegroup.com/trading/interest-rates/files/Calculating_U.S._Treasury_Futures_Conversion_Factors_Final_Dec_4.pdf

Yield is largely tied to the basis,

basis= Spot- (futures*conversion factor)

You can extrapolate price change of a change in the yield by multiplying the basis*DollarValue (DV01).

http://www.cmegroup.com/trading/interest-rates/files/Calculating_the_Dollar_Value_of_a_Basis_Point_Final_Dec_4.pdf

So the yield of the OTR bond (what is quoted on treasury.gov) is essentially a given, but the yield of the futures contract is tied to the CTD bond (this requires a cash bond feed) which changes based on yield and maturity.

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@addchild, you must be one of the most helpful people I know, thank you my friend. When I get in the right frame of mind to really dig into this after my schedule is complete today I am quite sure I will have some questions so don't go too far

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This video helped me in better understanding of treasury futures and Eurodollars.

Treasury-bond-futures trading and a video of action on the trading floor - YouTube


Eurodollars - YouTube

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This video helped me in better understanding of treasury futures and Eurodollars.

Treasury-bond-futures trading and a video of action on the trading floor - YouTube


Eurodollars - YouTube

Excellent. If I had classes like that, I might have actually paid attention...

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