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Modelling Sovereign Bond Yield Curves of the US, Japan and Germany

Author

Listed:
  • Chi-sang Tam

    (Research Department, Hong Kong Monetary Authority)

  • Ip-wing Yu

    (Research Department, Hong Kong Monetary Authority)

Abstract

The movement of sovereign yields is important for both investment and risk management. In this paper, we apply a method that was first developed by Diebold et al (2006b) to model the sovereign bond yield curves of the US, Japan and Germany. By including observable macroeconomic variables and the latent factors of the yield curve, we find evidence of strong interaction between the yield curve and macro variables in the US and Germany but not in Japan. We also estimate the dynamic conditional correlations of the latent factors to reveal cross-country correlations of the bond markets.

Suggested Citation

  • Chi-sang Tam & Ip-wing Yu, 2007. "Modelling Sovereign Bond Yield Curves of the US, Japan and Germany," Working Papers 0709, Hong Kong Monetary Authority.
  • Handle: RePEc:hkg:wpaper:0709
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    File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_09_full.pdf
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    More about this item

    Keywords

    Yield curve; Term structure; Interest rate; Kalman filter;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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