Predicting Power of Yield Curve – A Study of Indian Sovereign Yield Spread

2012 ◽  
Author(s):  
Golaka C. Nath ◽  
Manoj Dalvi ◽  
Saurabh Pratap Singh
Keyword(s):  
Yield Curve ◽  
Yield Spread

The Yield Spread and Bond Return Predictability in Expansions and Recessions

2020 ◽  
Author(s):  
Martin M Andreasen ◽  
Tom Engsted ◽  
Stig V Møller ◽  
Magnus Sander
Keyword(s):  
Term Structure ◽  
Yield Curve ◽  
Return Predictability ◽  
Yield Spread ◽  
Market Prices ◽  
Term Structure Model ◽  
Bond Returns ◽  
Bond Return ◽  
Key Driver ◽  
Macro Finance

Abstract This paper uncovers that expected excess bond returns display a positive correlation with the slope of the yield curve (i.e., yield spread) in expansions but a negative correlation in recessions. We use a macro-finance term structure model with different market prices of risk in expansions and recessions to show that a very accommodating monetary policy in recessions is a key driver of this switch in return predictability.

scholarly journals Shape Evolution of the Interest Rate Term Structure

2021 ◽  
Vol 13 (3) ◽  
Author(s):  
Biwei Chen
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Yield Curve ◽  
Yield Spread ◽  
Shape Evolution ◽  
Curve Shape ◽  
Yield Spreads ◽  
Novel Approach ◽  
Interest Rate Term Structure ◽  
The Interest Rate

This paper adopts a novel approach to studying the evolution of interest rate term structure over the U.S. business cycles and to predicting recessions. Applying an effective algorithm, I classify the Treasury yield curve into distinct shapes and find the less frequent shapes intrinsically linked to the recessions in the post-WWII data. In forecasting recessions, the median-short yield spread trumps the long-short spread for horizons up to 17 months ahead and the yield curve shape is nearly impressive as the median-short spread. Overall, the yield curve shape is an informative but more succinct indicator than the spreads in studying the term structure. Key words: Business cycle, recession forecast, U.S. Treasury yield curve, yield spreads.

scholarly journals The Predictive Power of the User Cost Spread for Economic Recession in China and the US

2019 ◽  
Vol 7 (2) ◽  
pp. 34 ◽  
Author(s):  
Dongfeng Chang ◽  
Ryan S. Mattson ◽  
Biyan Tang
Keyword(s):  
Financial Stability ◽  
Predictive Power ◽  
Yield Curve ◽  
Economic Recession ◽  
Predictive Ability ◽  
The United States ◽  
Chinese Economy ◽  
Yield Spread ◽  
User Cost ◽  
Us Economy

The predictive power of the yield curve slope, or the yield spread is well established in the United States (US) and European Union (EU) countries since 1998. However, there exists a gap in the literature on the predictive power of the yield spread on the Chinese economy. This paper provides a different leading recession indicator using the Chinese and US economy as comparative examples: the user cost spread, being the difference of the opportunity costs of holding government securities of different maturities. We argue that the user cost spread, based on the Divisia monetary aggregate data like the ones produced by the Center for Financial Stability, provides improved predictive ability and a better intuitive explanation based on changes in the user cost price of holding bonds.

The relationship of bond yield curves and gross domestic product growth in Scandinavia

2018 ◽  
Vol 4 (10) ◽  
pp. 398-405
Author(s):  
Jana Hvozdenska
Keyword(s):  
Economic Activity ◽  
Predictive Power ◽  
Yield Curve ◽  
Yield Spread ◽  
Gross Domestic Product Growth ◽  
Real Gdp ◽  
Bond Yield ◽  
Near Term ◽  
Relationship Of ◽  
The Relationship

The steepness of the bond yield curve is an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve and slows down real growth in the near-term. This paper analyses the dependence between slope of the yield curve and an economic activity of selected countries between 2000 and 2016. The slope of the yield curve can be measured as the yield spread between sovereign 10-year and 3-month bonds. The results showed that the best predictive lags are the lag of four and five quarters. The results also confirm that 10-year and 3-month yield spread has a significant predictive power for real GDP growth after a financial crisis. These findings can benefit investors and provide evidence of the potential usefulness of the yield curve spreads as indicators of the future economic activity. Keywords: GDP prediction, yield curve, slope, spread.

scholarly journals Has the Yield Curve Accurately Predicted the Malaysian Economy in the Previous Two Decades?

2020 ◽  
Author(s):  
Maya Puspa Rahman
Keyword(s):  
Yield Curve ◽  
Predictive Ability ◽  
Growth And Yield ◽  
Yield Spread ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Three Samples ◽  
Short Run ◽  
New Evidence

Previous researchers have argued that yield curve contains information for future growth, and to a certain extent, was accurate in predicting recessions through the signal of yield curve inversion. This paper provides new evidence on the long- and short-run relationship between economic growth and yield spread in Malaysia, based on a 20-year span of data ranging from January 1996 to December 2016. By using the autoregressive distributed lag (ARDL) framework, the sample data are divided into three samples after taking into consideration the two major crises occurred in Malaysia over the last two decades. We find strong evidence of cointegration between the yield spread and growth, concurring on the long-run and short-run dynamics between them. Though significant, the instability of the yield spread to affect the movement of growth does not support the priori expectation on the predictive ability of the yield curve in Malaysia.

scholarly journals Foreign Investments in the Chinese Bond Markets

2020 ◽  
Vol 6 ◽  
pp. 1
Author(s):  
Kerry Liu ◽  
Keyword(s):  
Yield Curve ◽  
Bond Market ◽  
Bond Markets ◽  
Yield Spread ◽  
Foreign Investments ◽  
Foreign Investors ◽  
Academic Literature ◽  
Specific Effects ◽  
Bond Yield ◽  
Strategic Factors

The Chinese bond market is the second largest in the world. However, studies on Chinese bond markets are very few, and especially there are no studies on foreign investments in the Chinese bond markets. This study fills the gap in the academic literature by focusing on foreign investments in the Chinese bond markets. By using the least-squares model with breaks, this study finds that although, in theory, the factors of exchange rate, yield spread, and yield correlation should play a significant role in attracting foreign investors to invest in the Chinese bond markets, the specific effects depend on the stage of the Chinese bond markets’ open-up. Initially, the main foreign investors are central banks and similar institutions, and they primarily consider more strategic factors than pure return or risk factors. As more institutional investors have entered the Chinese bond markets, the considerations of enhancing risks and/or reducing risks become more significant. The increasing foreign investments will be beneficial to the Chinese bond markets such as more issuance of longer-dated bonds, thus helping China to establish its RMB bond yield curve, and improving the market efficiency. The Chinese authorities should launch more policy initiatives to attract foreign investors.

The Equilibrium Yield Curve for Government Securities

1979 ◽  
Vol 35 (3) ◽  
pp. 31-39 ◽  
Author(s):  
Herbert F. Ayres ◽  
John Y. Barry
Keyword(s):  
Yield Curve ◽  
Equilibrium Yield

Modeling the green bond yield on bond offering

2020 ◽  
Vol 26 (12) ◽  
pp. 2858-2878
Author(s):  
M.I. Emets
Keyword(s):  
Linear Regression ◽  
Yield Curve ◽  
Bond Market ◽  
Third Party ◽  
Bond Pricing ◽  
Market Development ◽  
Fair Price ◽  
Lower Yield ◽  
Yield Curves ◽  
Bond Yield

Subject. The article addresses the green bond pricing as compared to bonds other than green ones. Objectives. The aims are to determine how the fact that a bond is identified as a green one, the issue amount, and the availability of third-party verification, influence the yield to maturity; to make recommendations on effective green bond pricing. Methods. The study employs econometric testing of hypotheses, using the multiple linear regression. The sample includes 318 green and 1695 conventional bonds. Results. Green bonds have a lower yield to maturity in comparison with conventional bonds. The yield to maturity of green bonds with third-party verification is lower, as contrasted with green bonds without verification. Conclusions. The next step in the green bond market development is creating a benchmark yield curve for sovereign green bonds, with parallel issuance of conventional, non-green bonds. The yield curve is crucial for effective bond pricing. Two yield curves, i.e. for green and non-green bonds, will enable investors to estimate the fair price on issuance, as well as to define, if there is a difference in pricing.

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