The builder, step by step
- Pick an issuer. Search any bond by name, ISIN or LEI, or open the builder from the issuer yield curve on a bond page. The chart shows the traded bonds of that issuer in one currency. To swap in another issuer, search a bond in the “Change issuer” field. The bonds you added stay.
- Read the numbers. “Biggest gap” is the bond furthest above the curve. “Slope” is the extra yield from the first to the last maturity. “Bonds on the chart” says how many of the issuer's bonds are on it, and why the others are left out. “Typical gap” is how close most bonds sit to the curve.
- Read the chart. Each dot is a bond: maturity across, yield to maturity up. Hover a dot for its price, duration and gap to the curve. Click a dot or a row to select its bond.
- Change a price. Type the price your broker shows in the selected bond, or step it by 0.10. The yield, the duration and the gap to the curve update at once, with the values at the market price under them. “Use the market price” puts it back.
- Hide a bond. The eye button takes a bond off the chart and out of the fit. It stays in the list, so you can show it again.
- Add a bond. “Add a new bond” opens a form. Find a listed bond to fill in its terms, or type the coupon, maturity and price. The form shows where the bond lands before you add it. Your bonds show as dark diamonds.
- Pick a seniority. Subordinated bonds are paid after senior bonds if the issuer fails, so they usually yield more. When an issuer has both, the chart shows one seniority, senior by default. The “Seniority” field puts the subordinated bonds on their own curve, or both on one curve.
- Pick a curve fit. Nelson-Siegel is the default and matches the curve on the bond pages. Linear, logarithmic, inverse, quadratic and cubic fits are there to compare. Every bond on the chart shapes the line, but a bond far from the others counts less.
What a yield curve shows
A yield curve shows the yield of each bond against the date the issuer repays it. Bonds from one issuer carry the same credit risk. So when you put them on one chart, most of the difference in yield comes from time. Longer bonds usually pay more, because you lock up your money for longer and take more interest rate risk. The curve shows how much extra yield the market pays for each extra year.
The shape of the curve also shows what the market expects. A steep curve often means that investors expect rates or risk to go up. A flat or inverted curve can mean that investors expect rates to fall, or that they see stress in the near term.
Why bonds off the curve can be good buys
The fitted line is an estimate of fair value. It shows the yield that a bond of that maturity should have, based on the other bonds of the issuer. Most bonds sit close to the line.
Some bonds sit well above the line. Such a bond pays more yield than the bonds next to it, so its price is low compared to its peers. The cause is often temporary. A large holder may have had to sell. The bond may trade less often, or it may have dropped out of an index. When the cause goes away, the price tends to move back toward the curve. As a buyer, you get the higher yield and a possible price gain as well.
The “vs curve” column in the table shows this gap in basis points. One basis point is 0.01%. A plus means the bond yields more than the curve. A minus means it yields less, so it is expensive compared to its peers.
Check before you buy
A gap is a reason to look closer. It does not prove that the bond is cheap. A call option, a lower seniority, a different currency or thin trading can each explain a higher yield. If you find no such reason, the gap may be a real opportunity.
Questions
What is a yield curve builder?
It is a tool that draws the yield curve of one bond issuer from the prices of its bonds. You can change the prices, hide bonds and add your own, and see at once which bonds pay more or less than the curve.
How is the curve fitted?
By default with the Nelson-Siegel model. It is the standard model for yield curves, and central banks use it too. It gives a smooth line that can rise, fall or bend once. You can also pick a linear, logarithmic, inverse, quadratic or cubic fit. A bond far from the others counts less in each fit, so one odd price does not bend the line.
What does “vs curve” mean?
It is the gap between the yield of a bond and the curve at the same maturity, in basis points. 100 basis points are 1%. A bond 20 bps above the curve pays 0.20% a year more than its neighbours, so it is cheap compared to them. A bond below the curve is expensive compared to them.
Why are some bonds left out?
The curve compares bonds that are alike. It leaves out bonds in another currency, inflation-linked bonds, bonds of the other seniority, and bonds whose yield does not compare: floating coupons, structured notes, bonds with no recent trade and bonds that repay in parts. “Bonds on the chart” lists how many each rule leaves out.
Where does the data come from, and is it free?
The bonds, prices and yields come from European MiFID regulatory disclosures. The builder is free and needs no account. Nothing you type is saved: your prices and bonds go away when you leave the page.
Find bonds to compare
Every bond page has an issuer yield curve with a link to this page. You can also find bonds in the bond screener, or work out the yield of one bond with the yield to maturity calculator.