Hi all, My questions are basically two folds, concerning term structure of zero-coupon rates and constant maturity swaps - specifically constant maturity Treasury swaps.1) This may be unlikely in reality, but suppose there are 2- and 3-year Treasury bonds, both maturing in 1 year from now. When we draw out a yield curve, it's drawn as a function of time to maturity, one-to-one mapped. So, it's effectively assumed here that the rates/yields on the two Treasury bonds should be identical. But what if not? Should it be considered an arbitrage opportunity?2) The FRB reports Constant Maturity Treasury (CMT) rates on all maturities. The following is quoted from their website:Yields on Treasury nominal securities at ?constant maturity? are interpolated by the U.S. Treasury from the daily yield curve for non-inflation-indexed Treasury securities. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The constant maturity yield values are read from the yield curve at fixed maturities, currently 1, 3, and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.From what they say, it sounds like they simply interpolate the par yield curve. However, as you all know, there is a contract called "Constant Maturity Swap (CMS)" or even "Constant Maturity Treasury Swap," which gives me the impression the CMT rates are actually calculated from this kind of contracts. Am I right about this? I know a CMS is a variant of a basis swap, whereby two floating rates are exchanged, but just can't extend this over to the CMT swap. If CMT rates are really derived from the CMT swaps, what are the terms here? What exactly are the two parties entering into the contract swapping? It'd be much appreciated if someone could some details. I couldn't find much about this on this forum either.Many thanks in advance!

1. Do the bonds have the same coupon rate? If not then they have different durations (however computed) and should then have different yields. But note that this requires the bonds to have more than one coupon remaining as well. If there is only a single payment left then the yields should be the same and if they aren't you have found an arb.2. Yes, the Fed passes a spline through the par yields. Someone else probably knows more about CMT products than I so I'll pass on that part.

Thanks DavidJN. 1) I was supposing the yields (YTMs) being the same with the same time left to maturity, so yes coupons/prices can be different. Then this will automatically translate to different durations. So sounds like you mean i) it's ok to have different rates on the same time-to-maturity point, but ii) even if the same, it's still ok as long as durations are different. Am I interpreting it correctly?Case ii) makes sense to me, and even better there is no problem drawing out a yield curve, so moving on to Case i), which I think isn't impossible, what is the convention here when the rates are different given the same time to maturity? Yes, I agree when both are maturing very soon with only one more payment left, the yields should be identical, so should duration.2) If it's just how the Fed named it, with no reference to CMT swap or CMS, then they named it wrong. It's very confusing!