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Yield Curve (yield + curve)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	93%

Distribution within Business, Economics, Finance and Accounting

General & Introductory Finance & Investments	56%
General & Introductory Economics	21%

Selected Abstracts

A Term Structure Decomposition of the Australian Yield Curve,

THE ECONOMIC RECORD, Issue 271 2009
RICHARD FINLAY
We use data on coupon-bearing Australian Government bonds and Overnight Indexed Swap (OIS) rates to estimate risk-free zero-coupon yield and forward curves for Australia from 1992 to 2007. These curves and analysts' forecasts of future interest rates are then used to fit an affine term structure model to Australian interest rates, with the aim of decomposing forward rates into expected future overnight cash rates plus term premia. The expected future short rates derived from the model are on average unbiased, fluctuating around the average of actual observed short rates. Since the adoption of inflation targeting and the entrenchment of low and stable inflation expectations, term premia appear to have declined in levels and displayed smaller fluctuations in response to economic shocks. This suggests that the market has become less uncertain about the path of future interest rates. Towards the end of the sample period, term premia have been negative, suggesting that investors may have been willing to pay a premium for Commonwealth Government securities. [source]

Foreign Bond Investment and the Yield Curve,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 1 2009
Sangwon Suh
Abstract Market participants have argued that the yield curve in the Korean bond market has been increasingly flattened since 2007 caused partly by foreign investors' rapidly growing investment in Korean bond market, motivated to take advantage of market imperfections seeking riskless profit making opportunities. To analyze how much foreign bond investments have affected the bond yields in Korea, in this paper I utilize a stylized affine term structure model that has an observable factor related with foreign bond investments as well as latent factors. I find supportive evidence for the argument by market participants that investment by foreigners has been an important factor behind the flattening of the yield curve since 2007. Taking out the effects of foreign bond investment on the yields, I observe much a weakened yield flattening phenomenon. [source]

Market-Based Measures of Monetary Policy Expectations and Their Evolution Since the Introduction of the Euro

ECONOMIC NOTES, Issue 3 2009
Fabio Filipozzi
The paper considers the relation between monetary policy expectations and financial markets in the case of Europe. A number of money market instruments are compared, with the result that the 1-month forward interest rates extracted from the Libor yield curve has the best prediction power of the future monetary policy path. These forward rates have been used to study the evolution of market expectations regarding the monetary policy of the European Central Bank (ECB). The sharp increases and the following decreases in interest rates during 2000,2001 have reduced the predictive power of money market instruments, but smoother management of interest rates and better communication from the ECB has helped to improve the forecasting power of money market instruments. [source]

Financial Intermediaries and Interest Rate Risk: II

FINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 5 2006
Sotiris K. Staikouras
The current work extends and updates the previous survey (Staikouras, 2003) by looking at other aspects of the financial institutions' yield sensitivity. The study starts with an extensive discussion of the origins of asset-liability management and the subsequent work to identify effective ways of measuring and managing interest rate risk. The discussion implicates both regulatory and market-based approaches along with any issues surrounding their applicability. The literature is enriched by recognizing that structural and regulatory shifts affect financial institutions in different ways depending on the size and nature of their activities. It is also noted that such shifts could change the bank's riskiness, and force banks to adjust their balance sheet size by altering their maturity intermediation function. Besides yield changes, market cycles are also held responsible for asymmetric effects on corporate values. Furthermore, nonstandard investigations are considered, where embedded options and basis risk are significant above and beyond the intermediary's rate sensitivity, while shocks to the slope of the yield curve is identified as a new variable. When the discount privilege is modeled as an option, it is shown that its value is incorporated in the equities of qualifying banks. Finally, volatility clustering is further established while constant relative risk aversion is not present in the U.S. market. Although some empirical findings may be quite mixed, there is a general consensus that all forms of systematic risk, risk premia, and the risk-return trade-off do exhibit some form of variability, not only over time but also across corporate sizes and segments. [source]

Debt Schedules of Tax-Exempt Bonds Using NIC

FINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 5 2001
Bryan Stanhouse
Municipal bonds are a large proportion of the total number of securities offered every year. The volume outstanding is more than that of all federal agency debt. It is important that the issuance procedure be as cost efficient as possible. This research develops a model to minimize the net interest cost of a municipal bond issue. Net interest cost remains a highly popular award criteria. The model incorporates the level and shape of the yield curve, the schedule of revenue to be received, and the segmented nature of the municipal market. [source]

Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission,

INTERNATIONAL FINANCE, Issue 2 2009
Silvio Colarossi
This paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision-making method, in the communication strategy and in the operational framework of a central bank. Through a generalized autoregressive conditional heteroscedasticity (GARCH) specification, we show that the United States and the euro area displayed a limited but significant spillover of volatility from money market to longer-term rates. We then checked the stability of this phenomenon in the most recent period of improved policy-making and found empirical evidence to show that the transmission of overnight volatility along the yield curve had entirely disappeared. [source]

Does the Yield Spread Predict Recessions in the Euro Area?,

INTERNATIONAL FINANCE, Issue 2 2005
Fabio MonetaArticle first published online: 16 DEC 200
This paper studies the informational content of the slope of the yield curve as a predictor of recessions in the euro area and provides evidence of the potential usefulness of this indicator for monetary policy purposes. In particular, the historical predictive power of ten variations of yield spreads, for different segments of the yield curve, is tested using a probit model. The yield spread between the ten-year government bond rate and the three-month interbank rate outperforms all other spreads in predicting recessions in the euro area. The forecast accuracy of the spread between ten-year and three-month interest rates is also explored in an exercise of out-of-sample forecasting. This yield spread appears to contain information beyond that already available in the history of output, and to outperform other competitor indicators. [source]

Dynamic Optimality of Yield Curve Strategies,

INTERNATIONAL REVIEW OF FINANCE, Issue 1-2 2003
Takao Kobayashi
This paper formulates and analyzes a dynamic optimization problem of bond portfolios within Markovian Heath,Jarrow,Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the asymptotic expansion approach in order to increase efficiency in computation. [source]

Hedging or Market Timing?

THE JOURNAL OF FINANCE, Issue 2 2005
Selecting the Interest Rate Exposure of Corporate Debt
ABSTRACT This paper examines whether firms are hedging or timing the market when selecting the interest rate exposure of their new debt issuances. I use a more accurate measure of the interest rate exposure chosen by firms by combining the initial exposure of newly issued debt securities with their use of interest rate swaps. The results indicate that the final interest rate exposure is largely driven by the slope of the yield curve at the time the debt is issued. These results suggest that interest rate risk management practices are primarily driven by speculation or myopia, not hedging considerations. [source]

Benchmark tipping and the role of the swap market in price discovery

THE JOURNAL OF FUTURES MARKETS, Issue 10 2007
Russell PoskittArticle first published online: 14 AUG 200
The author uses a high-frequency data set to investigate the roles of the sterling swap and futures markets in price discovery at the short-end of the sterling yield curve. Information flows between the futures and swap markets are found to be largely contemporaneous. Causal information flows are bidirectional, although the futures market dominates the information flow over the very short term. Thus, the futures market remains the primary locus of price discovery despite the increased use of swaps as a pricing benchmark and hedging instrument in recent years. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:981,1001, 2007 [source]

The use of term structure information in the hedging of mortgage-backed securities

THE JOURNAL OF FUTURES MARKETS, Issue 7 2005
Jason Fink
This article examines the importance of term structure variables in the hedging of mortgage-backed securities (MBS) with Treasury futures. Koutmos, G., Kroner, K., and Pericli, A. (1998) find that the optimal hedge ratio is time varying; we determine the effect of yield levels and slopes on this variation. As these variables are closely tied with mortgage refinancing, intuition suggests them to be relevant determinants of the hedge ratio. It was found that a properly specified model of the time varying hedge ratio that excludes the level and slope of the yield curve from the information set would provide similar out-of-sample hedging results to a model in which term structure information is included. Thus, both the level of interest rates and the slope of the yield curve are unimportant variables in determining the empirically optimal hedge ratio between MBS and Treasury futures contracts. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:661,678, 2005 [source]

MACRO-FINANCE MODELS OF INTEREST RATES AND THE ECONOMY

THE MANCHESTER SCHOOL, Issue 2010
GLENN D. RUDEBUSCH
During the past decade, much new research has combined elements of finance, monetary economics and macroeconomics in order to study the relationship between the term structure of interest rates and the economy. In this survey, I describe three different strands of such interdisciplinary macro-finance term structure research. The first adds macroeconomic variables and structure to a canonical arbitrage-free finance representation of the yield curve. The second examines bond pricing and bond risk premiums in a canonical macroeconomic dynamic stochastic general equilibrium model. The third develops a new class of arbitrage-free term structure models that are empirically tractable and well suited to macro-finance investigations. [source]

INDEPENDENCE DAY FOR THE ,OLD LADY': A NATURAL EXPERIMENT ON THE IMPLICATIONS OF CENTRAL BANK INDEPENDENCE,

THE MANCHESTER SCHOOL, Issue 3 2007
JAGJIT S. CHADHA
Central bank independence is widely thought be a sine qua non of a credible commitment to price stability. The surprise decision by the UK government to grant operational independence to the Bank of England in 1997 affords us a natural experiment with which to gauge the impact on the yield curve from the adoption of central bank independence. We document the extent to which the decision to grant independence was ,news' and illustrate that the reduction in medium- and long-term nominal interest rates was some 50 basis points, which we show to be consistent with a sharp increase in policy-maker's aversion to inflation deviations from target. We therefore suggest that central bank independence represents one of the clearest signals available to elected politicians about their preferences on the control of inflation. [source]

Foreign Bond Investment and the Yield Curve,

Phenol, chlorobenzene and chlorophenol isomers: resonant states and dissociative electron attachment,

RAPID COMMUNICATIONS IN MASS SPECTROMETRY, Issue 20 2003
Roustem V. Khatymov
This paper reports a study of resonant dissociative electron attachment (DEA) to the phenol, chlorobenzene, p- , m- , and o- chlorophenol molecules. On the basis of spectroscopic and thermochemical approaches the resonant states of the molecular negative ions (NIs) and the structures of some dissociative decay products are assigned. In the electron energy range up to 3,eV, DEA processes are determined by the two 2[,*]-shape resonances resulting mainly in formation of [MH], and/or Cl, ions. At higher electron energies the energy correlation between peaks in the negative ion effective yield curves and bands of UV spectra allowed identification of the core-excited resonances. The peculiarities of Cl, ion formation and the vibrational fine structure on the effective yield curves of the [MH], ions are discussed. The mass spectrometric procedures for measurement of relative cross sections for NI formation are described. Copyright © 2003 John Wiley & Sons, Ltd. [source]