I know its basic concept but can we think of yield curve as coupon curve and as the yield curve go up the coupon goes up by maturity? or yield curve we are only talking about the spot rate, what did i miss?
I get confused by a simple question, “Under a steeply upward-sloping yield curve scenario…”, so we are only talking about spot rates?
and what excatly is a yield curve risk anyway?
Coupons are what a bond pays every 6 months. Yield to maturity is essentially the IRR of the bond. The yield curve/term structure is the graph of various maturity bonds and their corresponding IRRs. Normally the curve is upward sloping meaning higher maturity bonds require higher yields/returns (I hope I got last one correect).
Usually, when people talk about “the yield curve”, they mean the par curve, not the spot curve.
Under a steeply upward-sloping yield curve scenario, Bond with put option will most likely:
- be put by the bondholders.
so we are saying as the par rate increases, a bond with put option is more likely to be put? how should I understand this
Assuming pure expectations, you expect higher interest rates in the future when the yield curve is upward-sloping, and substantially higher interest rates in the future if it is steeply upward-sloping.
If you exercise your put option, you get out of the low-yield bond and have cash to buy the high-yield bonds you expect to be available.
so yield curve here we are still talking about interest rate curve right?
“Yield” means “interest rate”.