Year-end Sale % OFF 
Abstract
Over the 1990 to 2014 period, we study the link between economic uncertainty and the distant-horizon segment of the Treasury term structure. We find a strong negative relation exists between the slope of distant Treasury forward interest rates (over the 10- to 30-year horizon) and economic uncertainty. This negative relation exists both in predictive regressions that relate the distant forward rate (FR) slope to lagged measures of economic uncertainty, and in comovement regressions that relate changes in the distant FR slope to contemporaneous uncertainty shocks. Additionally, the duration risk from mortgage-backed securities (MBS) is negatively related to the distant FR slope. Our findings suggest a hedge channel and a MBS-duration risk channel through which the distant FR slope and term risk premia are related to time-variation in macroeconomic uncertainty and other risks, beyond the traditional influences of bond volatility and convexity.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
