Bond yields can be plotted against their respective maturities to create a yield curve, which graphically represents a snapshot of the term structure of interest rates at a given point in time. The difference between yield curves is known as the credit spread, and quantifies the risk of a bond given a risk-free benchmark:
\usepackage{tikz}\usepackage{amsmath}\usetikzlibrary{arrows.meta, decorations.pathreplacing}\begin{document}\begin{tikzpicture}[scale=0.9, >=stealth] % Axes \draw[->] (0,0) -- (6,0) node[right] {Maturity (Years)}; \draw[->] (0,0) -- (0,5) node[above] {Yield (bp)}; \draw[thick] (0.5,0.8) arc (150:105:8cm and 8cm) node[right]{Corporate Bond}; \draw[thick] (0.5,0.4) arc (140:106:10cm and 6cm) node[right]{Treasury Bond}; % Credit Spread \draw[dashed] (3.4, 0) -- (3.4, 5) node[at start, below] {$t$}; \draw[thick, <->, color=purple] (3.4, 1.8) -- (3.4, 3.7) node[midway, right, yshift=0.25cm] {Credit Spread}; % -- X-axis ticks & labels for maturities \foreach \x in {1,2,3,4,5} \draw (\x,0.1) -- (\x,-0.1) node[below] {\x}; % -- Y-axis ticks & labels (just an example in increments of 1) % Interpreting each 1 as 20 bp (or your chosen scale). \foreach \y in {1,2,3,4} \draw (0.1,\y) -- (-0.1,\y) node[left] {\pgfmathparse{20*\y}\pgfmathresult};\end{tikzpicture}\end{document}
The yield curve of stripped (zero-coupon) bonds is known as the spot rate curve, and can be derived via the process of bootstrapping from the yield curve. Spot rates, which represent the zero-coupon yield at a certain snapshot of time, are crucial in determining forward rates (i.e., the rate which makes an investor indifferent between two or more bonds), such that the τ-period forward rate starting at time t is ft,t+τ=[(1+St)τ(1+St+τ)t+τ]1/τ−1,
for some spot rates Si.