Title: analysis of term structure of interest rates in Latin America
                        countries from 2006 to 2014

This article aims to investigate the relationship between the term structure of interest rates and macroeconomic factors in selected countries of Latin America, such as Brazil, Chile and Mexico, between 2006 and 2014, on an autoregressive vector model. Specifically, we perform estimations of Nelson-Siegel, Diabold-Li and principal component analysis to test how the change of macroeconomic factors, e.g. inflation, production and unemployment levels affect the yield curves. For Brazil and Mexico, GDP and inflation variables are relevant to change the yield curves, with the former shifting more the level, and the latter with greater influence on the slope. For Chile, inflation had the greatest impact on the level and, specifically for Mexico, the unemployment variable also changed the slope of the yield curve.

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Yield curve dynamics with macroeconomic factors in Iberian economies

Global Journal of Business Economics and Management Current Issues ◽

10.18844/gjbem.v10i3.4691 ◽

2020 ◽

Vol 10 (3) ◽

pp. 193-203

Author(s):

Isabel Maldonado ◽

Carlos Pinho

Keyword(s):

Interest Rates ◽

Term Structure ◽

Yield Curve ◽

Error Variance ◽

Impact Factors ◽

Strong Impact ◽

Impulse Response Functions ◽

Macroeconomic Factors ◽

Vector Autoregressive ◽

Future Evolution

Abstract The aim of this paper is to analyse the bidirectional relation between the term structure of interest rates components and macroeconomic factors. Using a factor augmented vector autoregressive model, impulse response functions and forecasting error variance decompositions we find evidence of a bidirectional relation between yield curve factors and the macroeconomic factors, with increased relevance of yield factors over it with increased forecasting horizons. The study was conduct for the two Iberian countries using information of public debt interest rates of Spain and Portugal and macroeconomic factors extracted from a set of macroeconomic variables, including indicators of activity, prices and confidence. Results show that the inclusion of confidence and macroeconomic factors in the analysis of the relationship between macroeconomics and interest rate structure is extremely relevant. The results obtained allow us to conclude that there is a strong impact of changes in macroeconomic factors on the term structure of interest rates, as well as a significant impact factors of the term structure in the future evolution of macroeconomic factors.

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Yield Curves, Swap Curves, and Term Structure of Interest Rates

Debt Markets and Investments ◽

10.1093/oso/9780190877439.003.0012 ◽

2019 ◽

pp. 203-228

Author(s):

Tom P. Davis ◽

Dmitri Mossessian

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Term Structure ◽

Yield Curve ◽

Yield Curves ◽

No Arbitrage ◽

Interest Rate Swap ◽

The Interest Rate ◽

Rate Swap ◽

The U.S

This chapter discusses multiple definitions of the yield curve and provides a conceptual understanding on the construction of yield curves for several markets. It reviews several definitions of the yield curve and examines the basic principles of the arbitrage-free pricing as they apply to yield curve construction. The chapter also reviews cases in which the no-arbitrage assumption is dropped from the yield curve, and then moves to specifics of the arbitrage-free curve construction for bond and swap markets. The concepts of equilibrium and market curves are introduced. The details of construction of both types of the curve are illustrated with examples from the U.S. Treasury market and the U.S. interest rate swap market. The chapter concludes by examining the major changes to the swap curve construction process caused by the financial crisis of 2007–2008 that made a profound impact on the interest rate swap markets.

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A regression and comparative study of United States and South African yield curves using principal component analysis

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v21i1.1626 ◽

2018 ◽

Vol 21 (1) ◽

Author(s):

Kavir Patel ◽

Ashfaaq Mohamed ◽

Gary W. Van Vuuren

Keyword(s):

United States ◽

Principal Component Analysis ◽

Interest Rates ◽

South African ◽

Yield Curve ◽

Principal Component ◽

Component Analysis ◽

The United States ◽

Yield Curves ◽

Analysis Technique

Volatile markets and economic environments can significantly distort the shape and smoothness of yield curve movements. This study explores the influence of movements in United States interest rates on South African interest rates. This study aims to identify the main underlying movements present in the United States and South African yield curves and to further determine the dominant factors that are responsible for driving South African interest rate movements. The principal settings for the study were the United States and South African markets representing, respectively, a developed and developing market. Principal component analysis was used to discern the major drivers of developing and developed market interest rates. The findings show that the principal component analysis technique is able to effectively classify and quantify the movements of yield curves across both markets in terms of three main factors, namely level, slope and curvature shifts. During certain periods, South African yield curve changes were largely driven by variations in United States interest rates and the rand/dollar exchange rate. Results also demonstrated that a volatile market and economic environment can significantly distort the shape and smoothness of yield curve movements.

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Analyzing and forecasting the Chinese term structure of interest rates using functional principal component analysis

China Finance Review International ◽

10.1108/cfri-06-2017-0065 ◽

2018 ◽

Vol 8 (3) ◽

pp. 275-296 ◽

Cited By ~ 4

Author(s):

Pan Feng ◽

Junhui Qian

Keyword(s):

Principal Component Analysis ◽

Interest Rates ◽

Term Structure ◽

Yield Curve ◽

Principal Component ◽

Functional Principal Component Analysis ◽

Content Type ◽

Functional Principal Component ◽

Out Of Sample ◽

Chinese Term

Purpose The purpose of this paper is to analyze and forecast the Chinese term structure of interest rates using functional principal component analysis (FPCA). Design/methodology/approach The authors propose an FPCA-K model using FPCA. The forecasting of the yield curve is based on modeling functional principal component (FPC) scores as standard scalar time series models. The authors evaluate the out-of-sample forecast performance using the root mean square and mean absolute errors. Findings Monthly yield data from January 2002 to December 2016 are used in this paper. The authors find that in the full sample, the first two FPCs account for 98.68 percent of the total variation in the yield curve. The authors then construct an FPCA-K model using the leading principal components. The authors find that the FPCA-K model compares favorably with the functional signal plus noise model, the dynamic Nelson-Siegel models and the random walk model in the out-of-sample forecasting. Practical implications The authors propose a functional approach to analyzing and forecasting the yield curve, which effectively utilizes the smoothness assumption and conveniently addresses the missing-data issue. Originality/value To the best knowledge, the authors are the first to use FPCA in the modeling and forecasting of yield curves.

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Bayesian smoothing spline models and their application in estimating yield curves

10.32469/10355/50137 ◽

2015 ◽

Author(s):

◽

Xiaojun Tong

Keyword(s):

Interest Rates ◽

Term Structure ◽

Yield Curve ◽

Smoothing Spline ◽

Calendar Time ◽

Yield Data ◽

Yield Curves ◽

Adaptive Smoothing ◽

Spline Models ◽

Bayesian Smoothing

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] The term structure of interest rates, also called the yield curve, is the series of interest rates ordered by term to maturity at a given time. The smoothing spline as a nonparametric regression method has been used widely for fitting a smooth curve due to its flexibility and smoothing properties. In this dissertation, a class of Bayesian smoothing spline models is developed for the yield curve estimation under different scenarios. These include the Bayesian smoothing spline model for estimating the Treasury yield curves, the Bayesian multivariate smoothing spline model for estimating multiple yield curves jointly, the Bayesian adaptive smoothing spline model for dealing with the yield data in which the smoothness varies significantly, the Bayesian smoothing spline model for extracting the zero-coupon yield curve from coupon bond prices, and the Bayesian thin-plate splines for modeling the yield curves on both the calendar time and the maturity. In addition, the Bayesian model selection in the smoothing spline models is developed to test the nonlinearity of the yield curves.

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Testing the Performance of Cubic Splines and Nelson-Siegel Model for Estimating the Zero-coupon Yield Curve

Naše gospodarstvo/Our economy ◽

10.1515/ngoe-2016-0011 ◽

2016 ◽

Vol 62 (2) ◽

pp. 42-50 ◽

Cited By ~ 1

Author(s):

Eva Lorenčič

Keyword(s):

Interest Rates ◽

Term Structure ◽

Financial Market ◽

Real World ◽

Yield Curve ◽

Cubic Splines ◽

Medium Term ◽

Government Bonds ◽

The Real ◽

The Relationship

Abstract Understanding the relationship between interest rates and term to maturity of securities is a prerequisite for developing financial theory and evaluating whether it holds up in the real world; therefore, such an understanding lies at the heart of monetary and financial economics. Accurately fitting the term structure of interest rates is the backbone of a smoothly functioning financial market, which is why the testing of various models for estimating and predicting the term structure of interest rates is an important topic in finance that has received considerable attention for many decades. In this paper, we empirically contrast the performance of cubic splines and the Nelson-Siegel model by estimating the zero-coupon yields of Austrian government bonds. The main conclusion that can be drawn from the results of the calculations is that the Nelson-Siegel model outperforms cubic splines at the short end of the yield curve (up to 2 years), whereas for medium-term maturities (2 to 10 years) the fitting performance of both models is comparable.

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A yield-only model for the term structure of interest rates

Annals of Actuarial Science ◽

10.1017/s1748499513000146 ◽

2013 ◽

Vol 8 (1) ◽

pp. 99-130 ◽

Cited By ~ 1

Author(s):

Şule Şahin ◽

Andrew J.G. Cairns ◽

Torsten Kleinow ◽

A. David Wilkie

Keyword(s):

Interest Rates ◽

Term Structure ◽

Principal Components ◽

Missing Values ◽

Yield Curve ◽

Principal Component ◽

Data Bank ◽

Term Structure Model ◽

Term Structures ◽

Bank Of England

AbstractThis paper develops a term structure model for the UK nominal, real and implied inflation spot zero-coupon rates simultaneously. We start with fitting a descriptive yield curve model proposed by Cairns (1998) to fill the missing values for certain given days at certain maturities in the yield curve data provided by the Bank of England. We compare four different fixed ‘exponential rate’ parameter sets and decide the set of parameters which fits the data best. With the chosen set of parameters we fit the Cairns model to the daily values of the term structures. By applying principal component analysis on the hybrid data (Bank of England data and fitted spot rates for the missing values) we find three principal components, which can be described as ‘level’, ‘slope’ and ‘curvature’, for each of these series. We explore the relation between these principal components to construct a ‘yield-only’ model for actuarial applications. Main contribution of this paper is that the models developed in the paper enable the practitioners to forecast three term structures simultaneously and it also provides the forecast for whole term structures rather than just short and long end of the yield curves.

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Variables Explaining Bank Stock Prices

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v26i4.301 ◽

2010 ◽

Vol 26 (4) ◽

Cited By ~ 2

Author(s):

Jimmy D. Moss ◽

Gisele J. Moss

Keyword(s):

Interest Rates ◽

Term Structure ◽

Stock Prices ◽

Yield Curve ◽

Stock Index ◽

Stock Market Volatility ◽

Explanatory Variables ◽

Bank Stock ◽

The Difference ◽

The Relationship

The purpose of this study is to examine the relationship between an index of bank common stock prices and a variety of explanatory variables including interest rates on Treasury securities of various maturities and other economic variables.  We also examine the relationship between the term structure of interest rates and bank stock prices.  A sample of week ending values of the bank stock index is used as a proxy for the bank industry.  The weekly closing interest rates for the 13-week Treasury bill, 5-year Treasury note, 10-year Treasury note and the 30-year Treasury bond are used in the study.  Other data used were the U.S. dollar index, the CRB index, the price of gold, the S&P500 stock index, the VIX stock market volatility index and a measure of the yield curve.  Data was taken from January 1998 through November 2009.  Therefore, a total of approximately 620 cases of weekly observations are included in the study.  In order to study the effects of term structure of interest rates on bank stock prices, we take the difference between the 10-year Note and the 13-week Bill.  All variables are converted to a stationary series by taking first differences of each series.  Multiple linear regression is then used to study the variables that can explain bank stock prices.  A stepwise procedure was used to identify those variables with the strongest relationships in a multi-variable equation.  Three independent variables were found with an R-squared of 0.619.  The results of this study corroborate previous studies and have practical implications for investors and for bank managers.

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