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What factors influence the yield curve?

Author

Listed:
  • Dániel Horváth

    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Péter Kálmán

    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Zalán Kocsis

    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Imre Ligeti

    (Magyar Nemzeti Bank (the central bank of Hungary))

Abstract

The shape and dynamics of the yield curve provide useful information in the analysis of current economic and financial developments, and market expectations. This article describes the key theoretical factors affecting the yield curve and examines their role in the developments in advanced and emerging markets seen in recent years. Our findings show that the common component of term premia and interest rate expectations of emerging countries co-move with corresponding factors observed in the United States. Of these two components, the term premium appears to be affected by global risk shocks. Concerns related to the Fed’s tapering of its QE3 programme were reflected markedly in the term premia of emerging markets and, to some extent, even had an upward impact on rate expectations. In the Hungarian context, in addition to analysing co-movement with international factors, we focus on the potential of the yield curve in the monitoring of domestic base rate expectations.

Suggested Citation

  • Dániel Horváth & Péter Kálmán & Zalán Kocsis & Imre Ligeti, 2014. "What factors influence the yield curve?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 9(1), pages 28-39, March.
    • Handle: RePEc:mnb:bullet:v:9:y:2014:i:1:p:28-39
    as

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    File URL: http://www.mnb.hu/letoltes/horvath-kalman-kocsis-ligeti.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    emerging markets; interest rate expectations; principal components; surveys; term premia;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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