Choose a set of four on-the-run Australian Commonwealth Government Securities. Collect the key characteristics of each of the bonds (coupon rate, maturity date) and bond yield data as at the end of December 2014 (last working day) and the end of June 2015 (last
working day). The bond data can be found on the RBA website
(http://www.rba.gov.au) (you will have to do some exploration of the site to find and
understand what you are looking for).
A. Use all available Government bond data (i.e. not just the bonds in your
portfolio) to construct and present a yield curve, spot curve and forward curve
as at the end of December 2014 and the end of June 2015. Your spot curve and
forward curve estimation should go out no more than 5 years. Present and
discuss your findings. (5 marks)
Review the predictive ability of the yield, spot and forward curves with
comprehensive reference to the relevant academic literature. Discuss the
curves that you have estimated in Part A with reference to this literature.
Does the December 2014 forward curve appear to predict the 6 month spot
rates at June 2015? Comment. (10 marks)
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