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Panel cointegration analysis of co-movement between interest rate swap and treasury markets

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  • Yuki Toyoshima
  • Shigeyuki Hamori

Abstract

Extending Ito's (2009) analysis, this article investigates the co-movement between interest rate swaps and treasury markets by using the panel cointegration tests developed by Maddala and Wu (1999). Empirical results show that there exists a single cointegration relationship between the swap rates and treasury rates for all maturities. The cointegration vector for the 2-, 3- and 4-year maturities is 1, showing that a 1% increase in the treasury rates will lead to a 1% increase in the swap rates. On the other hand, in the 5-, 7- and 10-year maturities, the cointegration vector is found to be more than 1, implying that a 1% increase in the treasury rates will lead to a more than 1% increase in the swap rates. Thus, a rise (decline) in the treasury rates is associated with a rise (decline) in the swap spread.

Suggested Citation

  • Yuki Toyoshima & Shigeyuki Hamori, 2012. "Panel cointegration analysis of co-movement between interest rate swap and treasury markets," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1483-1486, October.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:15:p:1483-1486
    DOI: 10.1080/13504851.2011.636015
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