“Daily Treasury Par Yield Curve Rates”

You are an intern with First Bank, and have been asked to develop estimates for yield spreads that
would be appropriate for corporate bonds or loans with different maturities and credit ratings. To
get a rough idea, you decide to start looking at recent data from the bond market.

1. Begin by finding the current U.S. Treasury yield curve. At the Treasury Web site
   (www.treasury.gov), search using the term “yield curve” and select “Treasury Yield Curve”.
   Under “Daily Treasury Par Yield Curve Rates”, Copy the February 15, 2022 1-year through
   30-year Treasury bonds into Excel and plot the current Treasury yield curve. (Hint: feel free
   to ignore the short term, e.g., 1 month, 2 month, rates)
2. Find the current yields for bonds issued by Microsoft Corporation. Go to finramarkets.morningstar.com/BondCenter/. Using the Search tab (located in the middle of the page
   with a light blue background), choose “Corporate” for the bond type and enter “Microsoft” for
   the issuer name. Sort the bonds by maturity and note the yields for bonds maturing within 1 to
   30 years. That is, take any bond with maturity between 2023 and 2052. Create a column in
   your spreadsheet called “year matures”, another column called “years to maturity”, and a third
   column called “yield”. Add a plot of these yields to your graph of the Treasury yield curve,
   and label it using Microsoft’s name and current bond rating. What is Microsoft’s current bond
   rating?
   Note 1: Record the date that you download the bond data in the Excel spreadsheet.
   Note 2: You can use Excel’s “trendline” feature to plot a smooth curve through these points. (Hint :
   Try different polynomial trendlines to find one that seems to provide a reasonably smooth
   approximation of the data.)
   Note 3: These bonds may differ somewhat in seniority or have features such as call provisions that
   cause their yields to vary. Also, the quotes provided are based on the most recent trades, but the
   timing of those trades may differ across bonds. For these reasons, bonds with similar maturity and
   rating may have different yields. Fitting a trendline through the points provides a rough estimate
   of the average yields we might expect for each maturity.
   2
   Group Project 2 Bond Valuations - FINA 3320 R. Huang
   Note 4: If you do not find the yield reported for a certain bond issue, it is okay to skip those issues.
3. Repeat the analysis in Step 2 for Visa Inc. What is Visa Inc.’s current bond rating? How does
   its yield curve differ?
4. Repeat the analysis again for Boeing Corporation (search for “Boeing Co”). What is Boeing
   Corporation’s current bond rating? How does its yield curve compare with the previous ones?
5. Together with what you have learned in Lecture 6 Bond Valuation and the exercise that you
   have done so far, what could you learn and conclude about yield curves, corporate bonds, and
   bond ratings?

Sample Solution