Yield curve estimation in the Philippine secondary bond market

The term structure of interest rates is considered as one of the most important factors in the capital market and probably in the economy. As it gives out the necessary information for valuing future cash flows, measuring economic expectations and testing the effectiveness of monetary policy decisions, its accurate modeling and reliable estimation exemplifies one of the most challenging topics in financial research. This paper was able to accomplished two important things. First, by reviewing two of the most widely-used parametric term structure estimation techniques available today - the Nelson-Siegel Model and Nelson-Siegel-Svensson Model - the author was able to prove that the Nelson-Siegel- Svensson Model has the better fitting performance for Philippine Government Bonds market. Second, using the selected model, it was able to produce a framework that could be used to generate zero coupon yield curve estimates for the Philippine secondary bond market