Author(s): Aida Tatibekova
This paper aims to investigate the challenges of estimating the yield curve of corporate bonds in Kazakhstan. The author suggests a method of constructing a yield curve of corporate bonds in the Kazakh debt market with low liquidity. The research covers the period from January 2014 to December 2018, with a sample of 397 corporate bonds with maturities varying from 1 year to 30 years. To estimate the term structure of corporate bonds, a parsimonious model (Nelson & Siegel) and a stochastic factor model (Vasicek) were applied on a 60-days smoothing period, which includes days with no trades on various segments of the curve. The findings of this paper indicate that both estimation models demonstrated the ability to adequately reflect interest rate movements and estimated continuous and smooth yield curves of Kazakh corporate bonds. However, Nelson & Siegel model had better indicators of the yield curve flexibility and was not quite sensitive to the constraint of low liquidity of the local debt market. The results of this study comply with the expectations hypothesis of the term structure of interest rates, implying that an inverted yield curve occurs when short-term bond rates had higher rates than those with longer maturities. Our results could be helpful for local market participants when planning bonds issue and for investors when choosing investment strategies.