An Empirical Analysis of the Canadian Term Structure of Zero-Coupon Interest Rates
AbstractZero-coupon interest rates are the fundamental building block of fixed-income mathematics, and as such have an extensive number of applications in both finance and economics. The risk-free government zero-coupon term structure is, however, not directly observable and needs to be generated from the prices of marketable, coupon-bearing bonds. The authors introduce the first public-domain database of constant-maturity zero-coupon yield curves for the Government of Canada bond market. They first outline the mechanics of the curve-fitting algorithm that underlie the model, and then perform some preliminary statistical analysis on the resulting yield curves. The full sample period extends from January 1986 to May 2003; it is broken down into two subsamples, reflecting the structural and macroeconomic changes that impacted the Canadian fixed-income markets over that time. The authors examine the evolution of a number of key interest rates and yield-curve measures over the period, perform a principal-components analysis of the common factors that have influenced yield changes over time, and compare holding-period returns over the sample for assets of various maturities.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 04-48.
Length: 50 pages
Date of creation: 2004
Date of revision:
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Financial markets; Interest rates; Econometric and statistical methods;
Find related papers by JEL classification:
- C0 - Mathematical and Quantitative Methods - - General
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-20 (All new papers)
- NEP-FIN-2004-12-20 (Finance)
- NEP-FIN-2004-12-22 (Finance)
- NEP-FMK-2004-12-20 (Financial Markets)
- NEP-MAC-2004-12-20 (Macroeconomics)
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