Chapter 7: The Term Structure of Interest Rates

In this section

• Spot Rates, Par Rates, and Forward Rates
  Spot Rates, Par Rates, and Forward Rates (CFA Level 1): Spot Rates, Bootstrapping and the Spot Rate Curve, and Par Rates. Key definitions, formulas, and exam tips.
• Constructing Yield Curves (Treasury, Benchmark)
  Constructing Yield Curves (Treasury, Benchmark) (CFA Level 1): Treasury Yield Curves as Benchmarks, Data Collection for Curve Construction, and Bootstrapping Zero-Coupon Spot Rates. Key definitions, formulas, and exam tips.
• Theories Explaining the Yield Curve (Pure Expectations, Liquidity, etc.)
  Theories Explaining the Yield Curve (Pure Expectations, Liquidity, etc.) (CFA Level 1): Pure (Unbiased) Expectations Theory, Mathematical Representation, and Strengths and Weaknesses. Key definitions, formulas, and exam tips.
• Applications of the Term Structure in Valuation
  Applications of the Term Structure in Valuation (CFA Level 1): Using the Term Structure for Bond Valuation, Arbitrage-Free Valuation, and Bond Valuation Process (Illustrated). Key definitions, formulas, and exam tips.
• Yield Curve Shapes and Movements (Flattening, Steepening, Butterfly)
  Yield Curve Shapes and Movements (Flattening, Steepening, Butterfly) (CFA Level 1): Common Yield Curve Shapes, Normal (Upward Sloping), and Flat. Key definitions, formulas, and exam tips.
• Forward Curve Strategies and Hedging Interest Rate Exposure
  Forward Curve Strategies and Hedging Interest Rate Exposure (CFA Level 1): Understanding Forward Rates, Market Expectations, and Terminal Value Projection. Key definitions, formulas, and exam tips.
• Dynamics of the Real Yield Curve
  Dynamics of the Real Yield Curve (CFA Level 1): What Is the Real Yield Curve?, Constructing a Real Yield Curve, and Data Gathering. Key definitions, formulas, and exam tips.
• Negative Yield Curves and Macro Implications
  Negative Yield Curves and Macro Implications (CFA Level 1): Understanding Negative Yields, Negative Yield Curves in a Macro Context, and Diagram: Simplified Negative Yield Curve. Key definitions, formulas, and exam tips.
• Curvature and Butterfly Strategies
  Curvature and Butterfly Strategies (CFA Level 1): Understanding Curvature, Butterfly Strategy, and Quick Analogy. Key definitions, formulas, and exam tips.
• Multi-Curve Frameworks for LIBOR Replacements
  Multi-Curve Frameworks for LIBOR Replacements (CFA Level 1): Background and Motivation, Evolution from Single-Curve to Multi-Curve Approach, and Components of the Multi-Curve Framework. Key definitions, formulas, and exam tips.
• Short Rate Models (Vasicek, CIR) in Term Structure Analysis
  Short Rate Models (Vasicek, CIR) in Term Structure Analysis (CFA Level 1): Vasicek Short Rate Model, Key Characteristics, and Analytical Bond Pricing. Key definitions, formulas, and exam tips.
• Segmented Markets Theory and Investor Clienteles
  Segmented Markets Theory and Investor Clienteles (CFA Level 1): Core Concepts of Segmented Markets Theory, Drivers of Market Segmentation, and Preferred Habitat Theory. Key definitions, formulas, and exam tips.
• Empirical Evidence on Yield Curve Inversions and Economic Predictions
  Empirical Evidence on Yield Curve Inversions and Economic Predictions (CFA Level 1): Historical Patterns of Inversions and Recessions, Why the Correlation?, and Tools for Analysis. Key definitions, formulas, and exam tips.
• Analysis of Yield Curve Shifts Using Principal Components
  Analysis of Yield Curve Shifts Using Principal Components (CFA Level 1): Building Blocks of PCA in Bond Markets, Why Data Matters in PCA, and Implementation Steps. Key definitions, formulas, and exam tips.
• Macro-Finance Models and No-Arbitrage Approaches to Yield Curves
  Macro-Finance Models and No-Arbitrage Approaches to Yield Curves (CFA Level 1): Macro-Finance Models, Integrating Macroeconomic Variables, and Structural Interpretation. Key definitions, formulas, and exam tips.
• Nelson-Siegel and Svensson Approaches to Yield Curve Estimation
  Nelson-Siegel and Svensson Approaches to Yield Curve Estimation (CFA Level 1): Nelson-Siegel Model Foundations, Conceptual Understanding of the Three Factors, and Nelson-Siegel Functional Form. Key definitions, formulas, and exam tips.