U.S. government securities are used to construct yield curves because
A) they are free of default risk.
B) the large number of maturities form a continuous curve.
C) they are free of default risk and the large number of maturities form a continuous curve.
D) None of the options are correct.

Question

Quizplus · Accepted Answer

U.S. government securities are considered risk-free, as the government has the power to print money or raise taxes to meet its financial obligations. The large number of maturities of these securities allows for the creation of a continuous yield curve, which is necessary for the analysis of interest rates for different maturities. As a result, U.S. government securities are commonly used to construct yield curves.

US Government Securities Are Used to Construct Yield Curves Because