South Korea Corporate Bond AA- 3Y Yield

KRCORPAA is a raw yield series recorded without transformation, the yield-to-maturity on unguaranteed AA- rated three-year won corporate bonds as observed in the market and stored exactly as reported. The quantity is a single point at the three-year maturity on the corporate credit term structure.

The yield-to-maturity is the constant discount rate that equates the present value of a bond's remaining coupon and principal cash flows to its price, in the tradition of measuring bond yields and duration, the cash-flow-weighted average maturity (Macaulay 1938). The level of a yield at a fixed maturity is read against the wider term structure defined by its forward-rate decomposition (Hicks 1939).

The three-year point is one node of a smooth rated curve fitted across maturities. This curve is fitted by the parametric level-slope-curvature form (Nelson and Siegel 1987) and its extended-hump generalization (Svensson 1994), or by the discount-function spline methods (McCulloch 1971; McCulloch 1975; Vasicek and Fong 1982).

How such a maturity-specific yield comes to be defined is described by the daily curve construction procedure and the comparative evaluation of these estimators (Gürkaynak, Sack, and Wright 2007; Bliss 1997). Because the recorded number is the yield on a coupon instrument, its sensitivity to rate moves follows the duration relationship (Fisher and Weil 1971), and the level itself is read against a collateralized risk-free discount benchmark (Duffie 1996).

KRED applies no transformation to the daily yield-to-maturity of KRCORPAA and stores it exactly as recorded. Because no rescaling, deflating, smoothing, or annualizing is applied, the only methodology that bears on it is the measurement basis by which a maturity-specific corporate yield comes to exist.

A bond's yield-to-maturity is the internal rate of return that solves the price-cash-flow identity, formalized as a discounting framework (Macaulay 1938). The yield assigned to the fixed three-year maturity is a node of the zero-coupon or par term structure recovered from coupon-bond prices, a structure whose forward-rate content has been characterized (Hicks 1939).

That recovery is done either by spline estimation of the discount function (McCulloch 1971; McCulloch 1975; Vasicek and Fong 1982), or by a parsimonious parametric curve (Nelson and Siegel 1987) extended with a second curvature term (Svensson 1994).

How a single maturity point is computed is governed by the daily off-the-run smoothing protocol and the method comparison (Gürkaynak, Sack, and Wright 2007; Bliss 1997). The mapping from the yield to a bond's price sensitivity follows the duration measure (Fisher and Weil 1971), and the level is interpreted relative to a risk-free discount benchmark such as the secured financing rate (Duffie 1996).

As a credit-market price, the AA- three-year yield sits above the risk-free term structure. This level carries the term-structure information content, namely the average of expected future short rates plus term and liquidity premia, and adds to it a credit-risk premium specific to the rating band (Hicks 1939).

The risk-free anchor to which it is referenced is itself pinned by the monetary-policy operating target of the corridor mechanism (Bindseil 2004; Borio 1997). This benchmark is steered around the overnight rate in a routine, day-to-day manner (Bartolini, Bertola, and Prati 2002; Hamilton 1996). Its foundation lies in the microstructure of the unsecured overnight interbank rate (Furfine 1999) and the secured overnight benchmark (Duffie 1996).

Movements in the recorded yield therefore track the transmission of policy through the curve. Because the shape across maturities is summarized by the parametric forms and forward-rate extraction, the three-year level can be read as expectations plus premia (Nelson and Siegel 1987; Svensson 1994). Bond-yield measurement and the operational curve make this level comparable over time (Macaulay 1938; Gürkaynak, Sack, and Wright 2007).

For pricing and risk management, the recorded three-year yield is the discount rate applied to AA- rated cash flows. Its first-order sensitivity to rate changes is captured by the duration construct and the term-structure duration, which form the basis for immunization and hedging (Macaulay 1938; Fisher and Weil 1971).

Relative-value desks read the level against the fitted rated curve. This rated curve is produced by the parametric form and its extension (Nelson and Siegel 1987; Svensson 1994), or by the discount-function splines (McCulloch 1971; McCulloch 1975; Vasicek and Fong 1982). The fair-value node against which a bond trades rich or cheap is determined by the daily construction protocol and the estimator comparison (Gürkaynak, Sack, and Wright 2007; Bliss 1997).

The spread of this yield over the secured risk-free rate is the credit and term compensation a portfolio earns (Duffie 1996). The forward rates decomposed from such a curve underpin the carry and roll-down measures used in fixed-income positioning (Hicks 1939).

On the 7,982 daily observations spanning 1995-01-03 to 2026-06-10, fit with a constant and trend, the unit-root battery agrees that the AA-minus corporate bond yield is integrated of order one. The augmented Dickey-Fuller test of Dickey and Fuller (1979), in the ARMA-consistent lag-augmented form of Said and Dickey (1984) and with lag length set as in Ng and Perron (2001), does not reject a unit root with p = 0.1523, the nonparametric Phillips and Perron (1988) test concurs with p = 0.0694, and the Kwiatkowski et al. (1992) stationarity test rejects its trend-stationary null at p < 0.01, so the verdict is an unambiguous I(1). The GLS-detrended power escalation of Elliott, Rothenberg, and Stock (1996) is reserved for ambiguous outcomes under the house protocol and is not required on this clean reading.

Because the level is integrated, the mean-shift and serial-correlation diagnostics are run on the first difference, the stationary object those procedures require, since a break search or a portmanteau on an integrated level would spuriously segment and read near-unit autocorrelations (Bai and Perron 1998; Perron 1989). The multiple-break procedure of Bai and Perron (1998), computed by the dynamic-programming algorithm of Bai and Perron (2003), finds no break in the mean of the differenced series, consistent with the parameter-instability inference of Andrews (1993). The Ljung and Box (1978) portmanteau statistic, refining the original Box and Pierce (1970) form, is computed on the first difference and rejects the white-noise null at lags 10 and 20, with Q = 1141.34 and Q = 1516.65 and p = 0.000 and p = 0.000, and the automatic portmanteau test of Escanciano and Lobato (2009) concurs with a statistic of 7.34 at p = 0.007.

The series is daily and has no low-integer seasonal period, so the seasonal-unit-root machinery of Hylleberg et al. (1990) and the Canova and Hansen (1995) seasonal-stationarity test are inapplicable and are deliberately not run, the degeneracy of the seasonal auxiliary regression at a daily period being the standard ground (Beaulieu and Miron 1992; Ghysels and Osborn 2001).