Sovereign Yield Curve
A Sovereign Yield Curve is a World Variable which is used to specify a yield curve on a currency that is backed by a
government.
The first item that must be specified for a Sovereign Yield Curve is whether
the data for this yield curve will be Date Specific or Term Specific. If the data will be date specific then select the "Maturity Dates Fixed"
button; otherwise, for term specific data select the "Maturity Terms Constant"
button. This item can be changed only if all existing yield curve data has been
deleted.
The next important specification is the default Yield of the composite yield curve. This is done by selecting the desired Compounding Frequency and Day Count Basis. This specification can be changed at any time and only impacts the default
displays of the yield curve. [All internal requests for yields are correctly
converted from this yield specification to the desired yield basis requested.]
The final specification required is for the Zero Coupon Curve. [All Sovereign Yield Curves automatically calculate a zero coupon curve
which is required for a variety of pricing purposes.] The Zero Coupon Curve
specification requires the following items:
- Number of Years: This specifies the length in years of the calculated zero coupon curve;
- Points Per Year: This specifies the number of points calculated per year for this zero coupon
curve.
The following is a display of a Sovereign Yield Curve on the USD currency:
In order to see graphs of the base yield curve and the zero yield curve, click
on the "Chart" button to display:
To return to the main display, click on the "Restore" button.
In order to examine how the data has been set up, select one of the items in
the list box with the Sovereign Yield Curve Data. For example, selecting
"USD_SYC_91_DAYS" will display:
This display shows that the 91 day government yield on the USD is specified
with SIMPLE compounding and an ACTUAL/360 day count basis. This yield is also
specified as a Mid-Market yield along with a Spread.
The current Mid-Market yield is 2.63333 % with SIMPLE compounding and an
ACTUAL/360 day count basis and the current yield Spread between the bid and ask
yields is zero.
The current Zero Coupon yield for this term is 2.70988% and is specified as a
ZERO-COUPON yield.
The Mid-Market yield formula shows that the current value is obtained from an External Data Variable called USD_91_DAY. And the current value of the yield Spread is obtained from
a Computed Data Variable called USD_YLD_SPREAD.
Naming Convention:
The Sovereign Yield Curve Data names are automatically created by adding the
maturity information to the end of the name chosen for the Sovereign Yield
Curve. The suffix that is added depends on whether the data is Date Specific or Term Specific.
Furthermore, the World Variable Data variables that are used to specify the Sovereign Yield Curve Data are also
named automatically. These names are generated using the generated name for the
Sovereign Yield Curve Data and then adding the appropriate suffix from the
following list:
- MIDMKT for Mid-Market prices;
- SPREAD for Spread prices;
- BID for Bid prices;
- ASK for Ask prices.