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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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    References listed on IDEAS

    as
    1. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The Bond Yield "Conundrum" from a Macro-Finance Perspective," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 83-109, December.
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    3. Cho‐Hoi Hui & Hans Genberg & Tsz‐Kin Chung, 2011. "Funding liquidity risk and deviations from interest‐rate parity during the financial crisis of 2007–2009," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(4), pages 307-323, October.
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    5. Hans Genberg, 2009. "Currency Internationalisation: Analytical and Policy Issues," Working Papers 312009, Hong Kong Institute for Monetary Research.
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    11. Robert N. McCauley & Rama Seth, 1992. "Foreign bank credit to U.S. corporations: the implications of offshore loans," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 52-65.
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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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