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CFA Level 2
Fixed Income

Yield Curve Construction Factors

Very Hard Term Structure Dynamics Yield Curve Construction

Consider a fictional bond market where the term structure of interest rates exhibits a steep upward slope. An analyst is tasked with constructing the yield curve using available data from various bonds with maturities ranging from 1 to 10 years. The bonds have accrued interest based on their coupon rates, and the analyst notes that the prevailing market expectations indicate a central bank tightening monetary policy. Given these conditions, which of the following factors, when incorporating various maturities, would most likely impact the yield curve construction in this scenario?

Hint

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