I had thought that spot rate is only a single observation of today's interest rate. I am getting confused when I read it somewhere that some interest rate models are spot rate based and use the spot rate curve.Can someone please explain what is implied by the spot rate curve?Thanks,asd

It is confusing. In most markets, "spot" means the price for standard settlement delivery. However, in interest rates it has also come to mean the shortest term interest rate (usually overnight). So the "spot 10-year rate" is the yield on a 10-year bond for settlement tomorrow. The "spot rate ten years from now" is the (unknown) overnight interest rate that will prevail in 10 years.A spot curve is a series of forward overnight interest rates. Different interest rate models use different relations between spot rates and term rates, but some rough sort of expectations has to apply, that is the 10-year rate today can't be too much different from the expected average spot rate over then next 10 years.

Spot in that context means "Zero Zoupon" or "Discount" curve. As opposed to coupon or forward curve.

QuoteOriginally posted by: Aaron .... Different interest rate models use different relations between spot rates and term rates, but some rough sort of expectations has to apply, that is the 10-year rate today can't be too much different from the expected average spot rate over then next 10 years....What is "term rate"? Would anyone advise me how to name the rate in a corporate zero-coupon yield curve? "zero-coupon yield", "spot rate", "term rate"?Originally, I want to name it zero-coupon yield. However, it seems rather long.Next, I want to name it as "spot rate". However, when I look it up from a dictionary, "spot rate" means "The theoretical yield on a zero-coupon Treasury".Any good suggestion?Really thanks!

You are mixing up two different things. The term of an interest rate is the period over which it applies: overnight, one year, ten years, whatever. By "relations between spot rates and term rates" I meant the effect changes in the spot rate level have on rates at some specific term (one year, ten years, whatever).There are many different ways to state an interest rate over a particular term, say 10 years. It can be full coupon (interest is paid out in cash periodically), zero coupon (interest is reinvested so the amout accrues), or something else. Also it can be stated in simple terms (compounded once over the entire interval), annually, semi-annually, monthly or continuously (log rate).

Thanks, Aaron for clarifying "terms of interest rate"Would anyone give me suggestion to name the rate in a corporate zero-coupon yield curve? "zero-coupon yield", "spot rate"?Originally, I want to name it zero-coupon yield. However, it seems rather long. Next, I want to name it as "spot rate". However, when I look it up from a dictionary, "spot rate" means "The theoretical yield on a zero-coupon Treasury".Thanks in advance!

You have to call it the zero coupon yield, or zero rate.

Aaron, thanks so much!!