Final answer:
Yield curves are indeed typically determined using zero-coupon treasuries due to their lack of coupon reinvestment risk and credit risk. Treasuries are backed by the U.S. government and hence are considered extremely low-risk, whereas corporate bonds, despite being rated AAA, carry higher risk and thus a higher yield.
Step-by-step explanation:
The statement that yield curves are determined from zero-coupon treasuries because there is no coupon reinvestment risk, and no credit risk is true. Zero-coupon treasuries are indeed used to construct yield curves due to their simplicity—they do not pay periodic interest, which eliminates the complication of reinvestment risk. Also, since they are issued by the U.S. government, they have very little to no credit risk, making them a benchmark for gauging default risk.
Treasuries, particularly Treasury bonds, are considered highly secure investment vehicles. For instance, when the U.S. government issues Treasury bonds, it can offer a relatively low rate of interest because of its reputability as an utmost safe borrower. On the other hand, corporations, even those considered relatively safe and given an AAA rating by agencies like Moody's, must offer a higher interest rate to attract investors due to a higher perceived risk compared to federal government debt. Hence, corporate bonds have a higher yield to compensate for the higher reinvestment and credit risks associated with them.