Forwards vs Futures

Notes on Yield Spreads

1. Understand what is on X axis and Y axis for Yield Curve.
2. Shapes of Yield Curves
3. Theories which Determines Shape of the Yield Curve.
a. Pure Expectations Theory
b. Liquidity Premium Theory
c. Market Segmentation Theory
4. Treasury Spot Rates -- simplest way to think is Zero Coupon Bond.
5. Stripping -- Dealers effectively create Treasury Securities the securities
which are not created by Treasury Dept.
6. Yield Spreads
a. Absolute spread = Higher yield - Lower Yield
b. Relative Spread = Absolute Spread / Subject Bond
c. Yield Ratio = Subject Bond / Benchmark Bond

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