In this series of (two) projects, you will analyze the building blocks of fixed-income analytics using data of Treasury bond prices and yields.

The following is what you are expected to do in the first project

•  Read the following article (you can download it from our Canvas course site).

John Y. Campbell. “Some Lessons from the Yield Curve,"Journal of Economic Perspectives, Vol. 9, No. 3 (Summer, 1995), 129-152

In particular, read the session of “Understanding the Term Structure" from page 130 to 135; you should be able to understand and explain the concepts in this part.

•  Download the zero coupon yield curves from our Canvas site. These are the log yields yt,τ of ZC bonds for τ = 1y, 2y, ··· , 30y on each date t.

•  Do the following calculations and analyses, explaining the procedures and results.

– Construct monthly series, using the end-of-month values, for the sample period of January 1981 to December 2018

– Plot the monthly series of the yield curve for maturities of 1y, 2y, ··· , 10y.

– In each month, compute the one-year log forward rate ft,τ,1y for maturity τ = 0, 1y, 2y, ··· , 9y. Then plot the monthly series of the 1y forward rate curve.

– Compute the modified duration and convexity for τ = 1y, 2y, ··· , 10y. Then plot the monthly series of the two measures.

– For all these measures, report their time-series mean and standard deviation as in the following table.