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I want to construct a BBB spot yield curve and am trying to figure out if I am understanding the process and interpretation. Any guidance would be appreciated here.

  1. I first gather a list of YTM’s of BBB corporate bonds for various maturities that were recently traded say as of “April, 17th, 2025”. I am able to gather this information from the TRACE database.
  • What is a good number of bonds to gather for this?
  • Should I be gathering data over many trading days?
  • When you plot these YTM’s are you creating a Par curve?
  1. Once I have this data I use a curve fitting process in my case the Nelson-Siegel model to create a smooth fitted yield curve.
  • Is this creating a par curve or a spot curve?
  • Do I need to covert my YTM’s first into spot rates and then use the Nelson-Siegel to get the spot yield curve?

If the above process is not correct, should I instead be creating the spot curve based on US treasuries and then adding the BBB OAS spread to that spot curve to get to a BBB spot curve?

I’ve been struggling finding resources about this so any guidance would be appreciated.

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  • $\begingroup$ Mixing bonds denominated in different currencies, i.e. with different risk-free rates, will not work well. Group them at least by currency, issuer domicile, and ideally industry secror. $\endgroup$ Commented Apr 19 at 23:18
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    $\begingroup$ You won't get zero curve by feeding par rates into Nelson Siegel. What you should do to get zero cuve - is bootstrapping. The fundamental difference between 'your' approach and bootstrapping is that you compute one yield per bond (and maturity) - i.e. you ignore the "rest" of the term structure. In bootstrapping you incrementally search for the "next unknown rate" that makes bond fairly valued, thereby in valuation of each bond using the rates you've already extracted from shorter bonds. $\endgroup$ Commented Apr 22 at 3:43

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