Par Yield Curve

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DEFINITION of 'Par Yield Curve'

A graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par.

BREAKING DOWN 'Par Yield Curve'

Deriving a par yield curve is a step toward creating a theoretical spot rate yield curve, which is then used to more accurately price a coupon-paying bond. A method known as bootstrapping is used to derive the arbitrage-free forward interest rates.

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