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The Yield of Ten-Year T-Bonds: Stumbling Towards a 'Good' Forecast

Author

Listed:
  • Weißbach, Rafael
  • Ponyatovskyy, Vladyslav
  • Zimmermann, Guido

Abstract

Due to their status as "the" benchmark yield for the world's largest government bond market and its importance for US monetary policy, the interest in a "good" forecast of the constant maturity yield of the 10-year U.S. Treasury bond ("T-bond yields") is immense. This paper assesses three univariate time series models for forecasting the yield of T-bonds: It shows that a simple SETAR model proves to be superior to the random walk and an ARMA model. However, dividing the sample of bond yields, dating from 1962 to 2005, into a training sample and a test sample reveals the forecast to be biased. A new bias-corrected version is developed and forecasts for March 2005 to February 2006 are presented. In addition to point estimates forecast limits are also given.

Suggested Citation

  • Weißbach, Rafael & Ponyatovskyy, Vladyslav & Zimmermann, Guido, 2006. "The Yield of Ten-Year T-Bonds: Stumbling Towards a 'Good' Forecast," Technical Reports 2006,50, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  • Handle: RePEc:zbw:sfb475:200650
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    References listed on IDEAS

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    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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    5. Marvin Goodfriend, 1993. "Interest rate policy and the inflation scare problem: 1979-1992," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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    More about this item

    Keywords

    T-bond; times series; 10-year yield; TAR model; bias-correction; non-linear time series;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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