Glossary: FI Module 09 — Term Structure
| Term | Definition |
|---|---|
| Spot rate () | The annualized yield on a zero-coupon bond maturing at time |
| Spot curve (zero curve) | A graph of spot rates across different maturities |
| Par curve | The curve of coupon rates at which bonds of each maturity would trade at par |
| Par rate | The coupon rate that makes a bond’s price equal to par for a given maturity |
| Forward rate () | The implied interest rate on a -year loan beginning years from now |
| Forward curve | A graph of forward rates across different starting dates |
| No-arbitrage pricing | Pricing a bond such that no riskless profit can be made by trading it and related instruments |
| Bootstrapping | The iterative process of deriving spot rates from the par curve, one maturity at a time |
| Yield curve | A general term for any graph showing yields (YTM, spot, par, forward) across maturities |
| Forward rate agreement (FRA) | A contract that locks in an interest rate for a future period |
| Implied forward rate | The forward rate derived from the current spot curve using no-arbitrage relationships |
| Riding the yield curve | A strategy of buying longer-maturity bonds and selling before maturity to profit from an upward-sloping curve |
See also: Term Structure