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Interpolated Yield Curve (I Curve)

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An interpolated yield curve – or “I curve” – is a type of yield curve generated from data points taken from yields and maturities of on-the-run Treasuries. On-the-run Treasuries are United States government bonds or notes that are in their initial offering period, usually the first few weeks of being issued. Using this data, financial analysts and investors can estimate the future direction of the bond markets and the economy.

To create an I curve, analysts use one of two interpolation techniques: bootstrapping and regression analysis. Bootstrapping involves calculating the differences in yields between existing Treasury points on the yield curve by analyzing the rate of change between on-the-run securities. Regression analysis uses statistical methods to analyze the relationship between the on-the-run Treasuries and the current yield curve, thereby suggesting the shape and level of the I curve.

Interpolated yield curves are most often used in the bond markets to better understand the relationship between various rates and maturities of debt securities. An I curve can also be used to create benchmark indices for bonds and provide other insight into the current state and future of the bond markets. Since Treasuries are considered to be the safest of all types of investments, I curves are also referred to as “risk free rates” because they provide insight into the yield on risk free investment options.

Overall, interpolated yield curves provide financial analysts and investors with valuable information about the future of the bond markets. An understanding of yield curves is key to making informed decisions in the bond markets, and I curves are an invaluable tool in interpreting the state of the markets.

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