[Verse 1] Government bonds are trading on the street With different maturities, the puzzle's incomplete We know their prices and their coupon rates But the spot rate curve is what we need to create Start with the shortest bond, it's plain to see Six months to maturity, that's our key No coupons paid, just pure discount The spot rate's easy to account [Chorus] Bootstrap up, step by step we climb One spot rate at a time Use the known to find unknown Build the curve from ground up home Bootstrap up, the method's clear Strip away what interferes From bond prices we derive The spot rates that keep markets alive [Verse 2] Now we take the one-year government note With coupon payments, here's what we wrote The six-month spot rate that we found before Helps us discount the coupon floor Present value of each payment stream Using known spots in our scheme The final payment gets the rate That makes the bond price calculate [Chorus] Bootstrap up, step by step we climb One spot rate at a time Use the known to find unknown Build the curve from ground up home Bootstrap up, the method's clear Strip away what interferes From bond prices we derive The spot rates that keep markets alive [Bridge] Eighteen months, two years, and more Each new bond opens up the door Discount every coupon flow With the spot rates that we know The last payment tells the tale Of the spot rate without fail Sequential solving is the way Building curves day by day [Verse 3] Zero-coupon equivalents we create From coupon bonds at every date The risk-free curve emerges clean From this bootstrapping machine Each maturity gets its place In the term structure we embrace From short to long, the rates align A perfect risk-free rate design [Chorus] Bootstrap up, step by step we climb One spot rate at a time Use the known to find unknown Build the curve from ground up home Bootstrap up, the method's clear Strip away what interferes From bond prices we derive The spot rates that keep markets alive [Outro] Government bonds show us the way To build the curve we use each day Bootstrap method, tried and true The spot rate curve is waiting for you
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