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Explaining the US bond yield conundrum

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  • Bandholz, Harm
  • Clostermann, Jörg
  • Seitz, Franz

Abstract

We analyze if and to what extent fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the low levels of US bond yields over the last few years. For that purpose, we start with a general model of interest rate determination. The empirical part consists of a cointegration analysis with an error correction mechanism. We are able to establish a stable long-run relationship and find that the behavior of bond yields, even during the last two years, can well be explained. Alongside the more traditional macroeconomic determinants like core inflation, monetary policy and the business cycle, we also include foreign holdings of US Treasuries. The latter should capture the frequently mentioned structural effects on long-term interest rates. Finally, our bond yield equation outperforms a random walk model in different forecasting exercises. -- In dem vorliegenden Papier untersuchen wir, ob und in welchem Ausmaß fundamentale makroökonomische Faktoren, temporäre Einflüsse und/oder strukturelle Faktoren zum niedrigen Niveau der Renditen in den USA in den letzten Jahren beigetragen haben. Dafür gehen wir von einem allgemeinen Zinsbestimmungsmodell aus. Die empirische Umsetzung verwendet eine Kointegrationsanalyse mit einem Fehlerkorrekturmechanismus. Es gelingt uns, eine stabile Langfristbeziehung für die Renditen aufzustellen, mit der wir die Entwicklung der Renditen, auch in den letzten Jahren, befriedigend nachvollziehen können. Neben den mehr traditionellen Faktoren wie Kerninflation, Geldpolitik und Konjunktur, berücksichtigen wir auch die ausländische Nachfrage nach US-Staatsanleihen. In letzterer dürften sich strukturelle Einflüsse auf die Renditen niederschlagen. Mit der präferierten Renditegleichung kann ein Random Walk in verschiedenen Prognoseszenarien geschlagen werden.

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Bibliographic Info

Paper provided by University of Applied Sciences Amberg-Weiden (OTH) in its series OTH im Dialog: Weidener Diskussionspapiere with number 2.

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Date of creation: 2007
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Handle: RePEc:zbw:hawdps:2

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Web page: http://www.oth-aw.de/

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Keywords: bond yields; interest rates; cointegration; inflation; forecasting;

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Cited by:
  1. Schalast, Christoph & Tiemann, Marcel & Tuppi, Pascal, 2009. "Staatsfonds - neue Akteure an den Finanzmärkten?," Frankfurt School - Working Paper Series 114, Frankfurt School of Finance and Management.
  2. Luis Eduardo Arango & Wilmar Cabrera & Esteban Gómez & Juan Carlos Mendoza, 2013. "Tasa de interés de largo plazo, interés técnico y pasivo pensional," Borradores de Economia 796, Banco de la Republica de Colombia.
  3. Arvind Subramanian, 2011. "Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition," Working Paper Series, Peterson Institute for International Economics WP11-14, Peterson Institute for International Economics.
  4. Thomas Goda & Photis Lysandrou, 2011. "The contribution of wealth concentration to the subprime crisis: a quantitative estimation," DOCUMENTOS DE TRABAJO CIEF, UNIVERSIDAD EAFIT 010718, UNIVERSIDAD EAFIT.
  5. Luis Eduardo Arango & Wilmar Cabrera & Esteban Gómez & Juan Carlos Mendoza, 2013. "Tasa de interés de largo plazo, interés técnico y pasivo pensional," BORRADORES DE ECONOMIA 011101, BANCO DE LA REPÚBLICA.
  6. Goda, Thomas & Lysandrou, Photis & Stewart, Chris, 2013. "The contribution of US bond demand to the US bond yield conundrum of 2004–2007: An empirical investigation," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 27(C), pages 113-136.
  7. Thomas Goda & Photis Lysandrou & Chris Stewart, 2011. "The contribution of us bond demand to the us bond yield conundrum of 2004 to 2007: an empirical investigation," DOCUMENTOS DE TRABAJO CIEF, UNIVERSIDAD EAFIT 010719, UNIVERSIDAD EAFIT.
  8. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Fiscal spillovers in the Euro area," Journal of International Money and Finance, Elsevier, Elsevier, vol. 38(C), pages 84.e1-84.e1.
  9. Phillip Daves & Michael Ehrhardt, 2011. "Creating a synthetic after-tax zero-coupon bond using US Treasury STRIP bonds: implications for the true after-tax spot rate," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(10), pages 695-705.

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