How Swap Curves Relate to Yield Curves

Summary

The document distinguishes a yield curve as a general representation of market interest rates across maturities from a swap curve as one curve built from swap market rates. It explains that other instruments, including government bonds and interbank rates, can also supply rates for constructing yield curves. Thus, a swap curve is a type of yield curve, rather than a fully interchangeable term for every yield curve.

The discussion also notes that different instruments may imply different curves because liquidity varies and markets can contain small inefficiencies. In an idealized, efficient and liquid market, curves from different instruments could align as representations of the time value of money. The source gives conceptual answers but no construction procedure, market data, or quantitative comparison. Its equivalence claim is therefore conditional: curve choice depends on the underlying instrument and market conventions, and observed curves need not match in practice.

Key ideas

• A yield curve represents interest rates across maturities and can be built from different instruments.
• A swap curve is a yield curve derived from swap market rates.
• Curves based on different instruments may diverge because of liquidity differences and market inefficiencies.
• In highly liquid, efficient markets, instrument-specific curves may be similar representations of the time value of money.

Tags

# Is the "swap curve" synonymous with the "yield curve"?


# Is the "swap curve" synonymous with the "yield curve"?












Looking at the swap curve construction here:

http://www.bankofcanada.ca/wp-content/uploads/2010/01/wp00-17.pdf

it seems to be constructed in an identical fashion as the yield curve as described here: https://en.wikipedia.org/wiki/Yield_curve#Construction_of_the_full_yield_curve_from_market_data

So are the terms "swap curve" and "yield curve" interchangeable?

## Answer by John Wood (score 1, accepted)

https://quant.stackexchange.com/a/36086

The concept is different, but in efficient and liquid markets, they could be the same thing. Essentially, you're asking what the "time value of money" is. There are many different instruments whose value is based off of said value - bonds, interest rate futures, interest rate swaps, etc. Therefore, in theory, if you wanted to build a curve that represents the time value of money over time, you could use the implied rates from all of the different sources to form a single curve.

However, as mentioned before by Alex C, there are lots of different curves due to differences in liquidity and some minor market inefficiencies.

## Answer by mert_kg (score 1)

https://quant.stackexchange.com/a/36076

Actually No,

Yield curve is simply market consensus interest rates for specific maturities. It can be build using similar government bonds, LIBOR rates, SWAP rates etc.

So swap curve is one type of yield curves.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.