Abstract: Treasury STRIPS derived from coupon payments of notes and bonds provide an effective reading of the zero-coupon yield curve. Among their advantages, coupon STRIPS are zero-coupon securities, have a complete range of maturities, and are fungible, which appears to make the coupon STRIPS yield curve relatively smooth. Yields on coupon STRIPS are compared to the zero-coupon yield curves derived from notes and bonds under the Nelson-Siegel and the Fisher-Nychka-Zervos methods. The results point to some shortcomings of these approaches and indicate that the zero-coupon yield curve could be estimated more precisely from coupon STRIPS.

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