Term Structure of Equity and Bond Yields over Business Cycles

2021 ◽  
Author(s):  
Ming Zeng ◽  
Guihai Zhao
Keyword(s):  
Business Cycles ◽  
Term Structure ◽  
Bond Yields

scholarly journals Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-13
Author(s):  
Mariya Gubareva ◽  
Ilias Chondrogiannis
Keyword(s):  
Business Cycles ◽  
Interest Rates ◽  
Capital Gains ◽  
Capital Gain ◽  
Bond Yields ◽  
Hedging Strategy ◽  
Treasury Bonds ◽  
Bond Portfolio ◽  
Policy Suggestions ◽  
The Relationship

We reexamine the relationship between credit spreads and interest rates from a capital gain perspective of bond portfolio. Capital gain sensitivity between US BBB-rated bonds and Treasury bonds is weak and positive in normal periods, but strong and negative during recessions. In the upward phase of business cycles, changes in interest rates are fully reflected in the bond yields, leaving spreads unchanged, while in the downward phase, rates and spreads move in opposite directions. This alternation between two distinct regimes reconciles a long-standing division in the literature. We then discuss the efficiency of shorting Treasury bonds as a hedging strategy and policy suggestions.

Estimation of Peru’s sovereign yield curve: the role of macroeconomic and latent factors

2019 ◽  
Vol 46 (3) ◽  
pp. 533-563
Author(s):  
Alejandra Olivares Rios ◽  
Gabriel Rodríguez ◽  
Miguel Ataurima Arellano
Keyword(s):  
Term Structure ◽  
Risk Premium ◽  
Yield Curve ◽  
International Markets ◽  
Bond Yields ◽  
Content Type ◽  
Vector Autoregressive ◽  
Term Structure Model ◽  
No Arbitrage ◽  
Unobservable Factors

PurposeFollowing Ang and Piazzesi’s (2003) study, the authors use an affine term structure model to study the relevance of macroeconomic (domestic and foreign) factors for Peru’s sovereign yield curve in the period from November 2005 to December 2015. The paper aims to discuss this issue.Design/methodology/approachRisk premia are modeled as time-varying and depend on both observable and unobservable factors; and the authors estimate a vector autoregressive model considering no-arbitrage assumptions.FindingsThe authors find evidence that macro factors help to improve the fit of the model and explain a substantial amount of variation in bond yields. However, their influence is very sensitive to the specification model. Variance decompositions show that macro factors explain a significant share of the movements at the short and middle segments of the yield curve (up to 50 percent), while unobservable factors are the main drivers for most of the movements at the long end of the yield curve (up to 80 percent). Furthermore, the authors find that international markets are relevant for the determination of the risk premium in the short term. Higher uncertainty in international markets increases bond yields, although this effect vanishes quickly. Finally, the authors find that no-arbitrage restrictions with the incorporation of macro factors improve forecasts.Originality/valueTo the authors’ knowledge this is the first application of this type of models using data from an emerging country such as Peru.

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