Another view on U.S. Treasury term premiums
The consensus suggests that subdued nominal U.S. Treasury yields on balance since the onset of the global financial crisis primarily reflect exceptionally low, if not occasionally negative, term premiums as opposed to low anticipated short rates. Depressed term premiums plausibly owe to unconventional Federal Reserve policy as well as to net flight-to-quality flows after 2007. However, two strands of evidence raise questions about this story. First, a purely survey-based expected forward term premium measure, as opposed to an approximate spot estimate, has increased rather than decreased in recent years. Second, with respect to the time-series dynamics of factors underlying affine term structure models, simple econometrics of recent data produce not only a more persistent level of the term structure but also a depressed long-run mean, which in turn implies an implausibly low expected short rate path. Strong caveats aside, an implication for central bankers is that unconventional monetary policy measures may have worked in more conventional ways, and an inference for investors is that longer-dated yields embed meaningful compensation for bearing duration risk.
|Date of creation:||01 Dec 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 33 Liberty Street, New York, NY 10045-0001|
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kozicki, Sharon & Tinsley, P. A., 2001.
"Shifting endpoints in the term structure of interest rates,"
Journal of Monetary Economics,
Elsevier, vol. 47(3), pages 613-652, June.
- Sharon Kozicki & Peter A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
- Bacchetta, Philippe & Mertens, Elmar & van Wincoop, Eric, 2006.
"Predictability in Financial Markets: What Do Survey Expectations Tell Us?,"
CEPR Discussion Papers
5770, C.E.P.R. Discussion Papers.
- Bacchetta, Philippe & Mertens, Elmar & van Wincoop, Eric, 2009. "Predictability in financial markets: What do survey expectations tell us?," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 406-426, April.
- Philippe Bacchetta & Elmar Mertens & Eric van Wincoop, 2006. "Predictability in Financial Markets: What Do Survey Expectations Tell Us?," Working Papers 102006, Hong Kong Institute for Monetary Research.
- Philippe Bacchetta & Elmar Mertens & Eric van Wincoop, 2006. "Predictability in Financial Markets: What Do Survey Expectations Tell Us?," Working Papers 06.04, Swiss National Bank, Study Center Gerzensee.
- Refet S. Gürkaynak & Jonathan H. Wright, 2012.
"Macroeconomics and the Term Structure,"
Journal of Economic Literature,
American Economic Association, vol. 50(2), pages 331-67, June.
- Tobias Adrian & Emanuel Moench, 2008.
"Pricing the term structure with linear regressions,"
340, Federal Reserve Bank of New York.
- Adrian, Tobias & Crump, Richard K. & Moench, Emanuel, 2013. "Pricing the term structure with linear regressions," Journal of Financial Economics, Elsevier, vol. 110(1), pages 110-138.
- Kim, Don H. & Orphanides, Athanasios, 2012.
"Term Structure Estimation with Survey Data on Interest Rate Forecasts,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 47(01), pages 241-272, April.
- Athanasios Orphanides & Don H. Kim, 2005. "Term Structure Estimation with Survey Data on Interest Rate Forecasts," Computing in Economics and Finance 2005 474, Society for Computational Economics.
- Kim, Don H. & Orphanides, Athanasios, 2005. "Term Structure Estimation with Survey Data on Interest Rate Forecasts," CEPR Discussion Papers 5341, C.E.P.R. Discussion Papers.
- Don H. Kim & Athanasios Orphanides, 2005. "Term structure estimation with survey data on interest rate forecasts," Finance and Economics Discussion Series 2005-48, Board of Governors of the Federal Reserve System (U.S.).
- Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-76, December.
- Michael D. Bauer & Glenn D. Rudebusch, 2011.
"The signaling channel for Federal Reserve bond purchases,"
Working Paper Series
2011-21, Federal Reserve Bank of San Francisco.
- Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
- Lemke, Wolfgang & Werner, Thomas, 2009. "The term structure of equity premia in an affine arbitrage-free model of bond and stock market dynamics," Working Paper Series 1045, European Central Bank.
- Andrew Ang & Monika Piazzesi, 2001.
"A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables,"
NBER Working Papers
8363, National Bureau of Economic Research, Inc.
- Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
- J. Benson Durham, 2007. "Implied interest rate skew, term premiums, and the "conundrum"," Finance and Economics Discussion Series 2007-55, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:658. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber)
If references are entirely missing, you can add them using this form.