Bond Yields Research Articles

The New Keynesian Model and Bond Yields

The New Keynesian Model and Bond Yields

Crops, Drops and Bonds: The Impact of Water Risk on U.S. Municipal Bond Yields

Crops, Drops and Bonds: The Impact of Water Risk on U.S. Municipal Bond Yields

“Whatever it Takes!” How Tonality of TV-News Affected Government Bond Yield Spreads During the European Debt Crisis

“Whatever it Takes!” How Tonality of TV-News Affected Government Bond Yield Spreads During the European Debt Crisis

Study on the Efficiency of China's Convertible Bond Market Based on ARMA-GARCH Models

This study examines the prediction and analysis of China's convertible bond market using a combined ARMA and Generalized GARCH model. If this model can effectively achieve its predictive goals, it indirectly suggests that China's convertible bond market has not yet reached weak-form efficiency. The study focuses on the Shenzhen Investment Grade Convertible Bond Index, utilizing daily closing price data from January 2, 2019, to June 18, 2024, as the sample, providing a robust empirical foundation for the model. Empirical results indicate that the constructed model effectively captures the volatility patterns of current convertible bond yields, implying that historical price data holds certain predictive significance for current prices. Furthermore, through empirical analysis using the GARCH-M(1, 1) model, we find a relationship between yield volatility in the convertible bond market and historical risk levels. This suggests that market risk may not be fully priced rationally, as historical risk levels can help forecast current yield volatility, further confirming that China's convertible bond market has not yet achieved weak-form efficiency

Corporate Real Estate Values and Bond Yield Spreads

Corporate Real Estate Values and Bond Yield Spreads

Վերաֆինանսավորման տոկոսադրույքի տատանումների ազդեցությունը շուկայական տոկոսադրույքների վրա Հայաստանի Հանրապետությունում / Effect of Refinancing Interest Rate Fluctuations on Market Interest Rates in the Republic of Armenia

It is indisputable that the real sector of the economy requires investment, especially in the current technological age. Banks, on the other hand, possess significant financial resources, but due to insufficient, asymmetric information and the underdeveloped financial system, the interaction between the real and financial sectors is ineffective. The "late response" of the financial sector to changes in the real sector has become the cause of a chronic oversupply of financial services, resulting in a situation where the level of liquidity in banks is largely independent of economic cycles. The paper aims to identify the ways in which interest rate fluctuations impact the real and financial sectors of the RA economy and to evaluate this impact. The paper analyzes trends in the main indicators characterizing the real and financial sectors of RA, as well as the behavior of various types of interest rates according to the factors determining them. It comments on the macroeconomic developments in RA caused by interest rate fluctuations. With the help of econometric models, the study estimates the effect sizes between various links on the interest rate path. The study made it possible to highlight the problems with the transmission mechanisms of the monetary policy of RA and suggest possible solutions. As a result of the assessment, it was found that deposit and credit interest rates, interbank repo rates, and one-year government bond yield rates respond to changes in the refinancing rate of the Central Bank in different time lags.

Bond yield effects of corporate bond default: Evidence from bond default events of 2014–2022

This paper conducts an event study to examine the impact of bond default events on daily bond yields following rigid payment defaults. Our results demonstrate a significant increase in abnormal returns of corporate bonds subsequent to intra-industry bond defaults. Notably, the extent of this effect varies based on credit quality and bond type. Further analyses reveal that companies of lower credit quality and unlisted are notably more affected by default events. Specifically, we find some evidence that defaults in publicly listed firms, state-owned enterprises, or medium-term notes lead to more pronounced effects on bond yields.

주택시장과 거시경제변수들 간의 장기적 균형관계 연구

This paper was empirically conducted to compare the explanatory power of the Vector Error Correction Model (VECM) and Vector Autoregressive Model (VAR Model) in predicting the long-term equilibrium relationship between housing prices and macroeconomic variables. The analysis period spans from January 1987 to July 2023. The analysis results are as follows. First, it is found that there exists one cointegration relationship among housing prices, stock prices, liquidity, 5-year yield of government housing bonds, and income. Therefore, the VECM model can be applied to analyze the long- and short-term equilibrium relationship. Secondly, the estimation results of the VECM model revealed the presence of the following long-term relationships: a negative (-) relationship between housing prices and stock prices, a positive (+) relationship with liquidity, a negative (-) relationship with the 5-year yield of government housing bonds, and a positive (+) relationship with income. This aligns with the expected theoretical signs. Thirdly, the Root Mean Square Error (RMSE) and Theil's Inequality Coefficient, which indicate the predictive and explanatory power of the VECM and VAR models, respectively, showed that the VECM model outperformed the VAR model with smaller values for both metrics. Therefore, when a cointegration relationship exists between housing prices and macroeconomic variables, it is necessary to apply the VECM model rather than the VAR model for analysis.

Harmony and Discord: Unraveling the response of Yields of Fixed Income Securities against Economic Instabilities

In the times of macroeconomic and financial instability, governments are prone to issue excessive fixed-income securities in local as well as international markets while offering excessive rates of returns to fill their financing gaps. Therefore. this study aims to investigate the effect of the prevalent macroeconomic and financial instability of a country on the yields of Sukuk (Islamic bonds) and conventional bonds. The study collects the monthly data from Pakistan for the period 2015 to 2022 considering that the country has been facing such economic instabilities for the last few years. The findings reveal that there is a positive effect of inflation, interest rate, and the risk premium on the yields of both conventional and sukuk bonds. However, foreign exchange volatility and the performance of the stock exchange affect the conventional yield negatively. This study revealed lucrative prospects for investors who choose to invest in fixed-income assets, in terms of diversification gains by investing in both conventional and Sukuk bonds.

The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under

ABSTRACTWe study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the targeted government bond outstanding, and the target bond's yield dislocated from other financial market instruments. The evidence suggests that central bank bond purchase programs can operate more narrowly than previously considered.

Bond market development and economic growth nexus in developing countries: a GMM approach

PurposeThis study examines the nexus of bond market development and economic growth from 2015 to 2022.Design/methodology/approachThe system-generalized method of moments (GMM) is employed on economic growth, government market capitalization, corporate market capitalization, bond yield, interest rate spread, trade openness and investment level.FindingsThe findings show that the government bond market, corporate bond capitalization and bond yield positively impact the gross domestic product (GDP). The results equally reveal a causal link between the corporate bond market, bond yield and GDP.Research limitations/implicationsGovernments should emphasize creating, developing and sustaining bond markets in the economies of developing countries to boost economic activity by promoting structural transformation. Policymakers should improve the implementation of existing rules and regulations while complementing them with new ones since well-developed bond markets provide alternative sources of financing that make economies financially resilient. Policymakers should encourage the issuance of corporate bonds to enhance the efficiency of the capital markets and mobilize funds for economic growth stimulation. Governments and corporations should diversify their sources of funding into the bond markets since the bond yields are favorable to economic growth.Originality/valueEarlier studies presented arguable results on the bond market development and economic growth nexus. Several findings indicate a positive link; others give a negative link between bond market development and economic growth. Some show causal directions, while other reveal none. The contradictory results motivate research. This research results contribute to the literature in that the government bond market, corporate bond capitalization and bond yield positively impact the GDP of developing nations.

Do Financial Markets Respond to Populist Rhetoric?

AbstractWith the global rise in populism over the last decade, there has been an increase in political commentaries (PC) by leaders that criticize their central banks and argue for lower interest rates. We analyse the effects of PCs on exchange rates, bond yields, and the risk premium for six countries that are subject to political pressures. Utilizing a specification with time‐varying parameters, we show that PCs affect the level and the volatility of exchange rates, bond yields and the risk premium in Turkey. The response increases over time. In other countries, there is a significant impact on exchange rate volatility.

Corporate fraud, inertia and market conditions in explaining the differences in the exchange characteristics of bonds in the Russian market

Subject. This article deals with the empirical tests of asset pricing models with Russian bonds. Objectives. The article aims to analyze risk factor sensitivities for bond portfolios using asset pricing models with prominent factors and newly proposed risk factors, based on bond market fundamental anomalies, and identify term structure of factor loadings through hidden bond market states corresponding to business cycle stages. Methods. We used the Hidden Markov Model to recover the sequence of bond market states based on spread of ten-year minus three-month government bond yields. Results. The article provides evidence of the significant contribution of the newly proposed risk factors, corresponding with corporate fraud, and momentum factors to the explanatory power of asset pricing models for bond portfolios excess returns. Specifically, we find a strong idiosyncratic momentum effect in the cross-section of Russian bond returns and hence introduce a bond idiosyncratic return momentum factor. We introduce hidden bond market states based on spread of government bond yields and show that proposed market states are statistically and economically significant. We examine the state-dependent explanatory power of the risk factors for test portfolios. Conclusions. The study contributes to the risk estimation accuracy, and presents theoretical framework and empirical evidence of factor-based investing in fixed income instruments. Investors in the Russian bond market should account for bond exposure to the newly proposed risk factors in the risk-adjusted performance analysis of bond portfolios.

Treatment of Missing Market Data: Case of bond Yield Curve Estimation

Missing observations in market data is a frequent problem in financial studies. The problem of missing data is often overlooked in practice. Missing data is mostly treated using ad hoc methods or just ignored. Our goal is to develop practical recommendations for treatment of missing observations in financial data. We illustrate the issue with an example of yield curve estimation on Russian bond market. We compare three methods of missing data imputation — last observation carried forward, Kalman filtering and EM–algorithm — with a simple strategy of ignoring missing observations. We conclude that the impact of data imputation on the quality of yield curve estimation depends on model sensitivity to the market data. For non-sensitive models, such as Nelson-Siegel yield curve model, final effect is insignificant. For more sensitive models, such as bootstrapping, missing data imputation allows to increase the quality of yield curve estimation. However, the result does not depend on the chosen data imputation method. Both simple last observation carried forward method and more advanced EM–algorithm lead to similar final results. Therefore, when estimating yield curves on the illiquid markets with missing market data, we recommend to use either simple non-sensitive to the data parametric models of yield curve or to impute missing data before using more advanced and sensitive yield curve models.

On the effectiveness of the interest rate channel within inflation targeting in Ukraine: a VAR approach

Assessing the effectiveness of the inflation targeting framework via the interest rate channel remains crucial in the current monetary policy debate. For Ukraine, the relevance of this discussion is enhanced by the adoption by the National Bank of a rigid inflation targeting policy since 2016, as well as by the challenges of price stability during war. The aim of the study is to identify how the discount rate affects the money market rates and how this affects inflation in Ukraine. Employing a VAR model on monthly data spanning 2016 – Q1 2022, the analysis demonstrates weak empirical evidence for the interest rate channel effectiveness. The impulse response indicates that the discount rate’s initial effect does not provide long-term inflation dynamics control. Variance decomposition analysis highlights the minimal influence of the NBU’s discount rate, primarily evident in the refinancing rate, followed by its impact on the rate of term deposits made by individuals, followed by the inflation, followed by the rate of new loans granted to residents, and finally the rate of government bond yields. Addressing the limitations of a rigid inflation targeting approach, the study recommends adopting a balanced approach, considering both price stability supported by exchange rate control measures and fostering economic growth. Additionally, a viable strategy for deepening the financial sector should be developed.

Process and Design Challenges for Hybrid Bonding

Hybrid bonding is one of the key technology to enable solutions for high bandwidth with increasing power and signal integrity. Hybrid bonding involves, face-to-face interconnect formation between wafers and it acts as an extension of fusion bonding technology. Wherein, dielectric materials such as silicon dioxide bond at room temperature and the copper vias embedded in the dielectric expand to form the electrical connections, enabling the interconnect formation between the top and bottom wafer.Hybrid bonding provides advantages over traditional C4 flip-chip bonding involving solder-based micro-bumps, such as, interconnect pitch scaling to less than 10 µm thereby providing higher interconnect density and increased power and signal speed efficiency for memory and high-performance computing application along with better reliability. It is compatible with standard CMOS fabrication technology.In this work, we would like to present the design and process challenges which may lead to improved bonding yield. To enable hybrid bonding with high yield it is necessary that the bonding surfaces are flat with low roughness. The optimized chemical mechanical polishing (CMP) process is one of the key process technology which enables surface topography to be less than 10 nm and surface roughness to be less than 0.8 nm. The surface topography is dependent on the metal via layout, interconnect density and the surrounding dielectrics and hence, these design parameters act as a guiding principle for the application-oriented definition of the design to accommodate different pitch sizes of interconnecting vias (from 1 µm to 10 µm). The mechanical properties of the materials play a key role as well as this will define the removal rate of dielectric and the metals during the CMP process which will affect the dishing and the surface topography. To achieve high bonding yield the surface topography is key as this will affect the bond front propagation and hence the bonded and non-bonded region between the dielectrics. To further improve the bonding yield we have applied a tailored annealing recipe which improves the bonding yield significantly. This paper would focus our work on topography improvement and overall bonding yield in detail and a comparison of bonding yield with and without dummy vias. Dummy vias in this context refer to the copper via structures that are not intended for interconnect formation but are there for CMP process optimization to achieve better process control. Hence, the dummy vias are not connected to the underlying routing metal layer.Figure 1, shows an ideal surface that would result in W2W bonding with high yield. Figure 2 shows, the defects such as high copper dishing, copper protrusion, dielectric erosion and poor surface topography which will result in poor bonding yield. Figure 3 shows the bonding using SiON as the bonding dielectric with (a) without dummy copper vias (~98% bond yield) and (b) with dummy copper vias (~88% bond yield). Figure 1

State corporate tax changes and bond pricing: U.S. evidence

In this study, we empirically investigate whether and to what extent state tax changes may affect the cost of debt. We employ staggered changes in state corporate income tax rates in the U.S. as exogenous shocks and estimate the effects of these state tax changes on bond at-issue yield spreads. We find a significant and positive relation between bond yield spreads and state tax increases but an insignificant relation between bond yield spreads and state tax decreases. On average, tax increases result in an increase of 34 basis points in the average bond yield spread. In addition, we document that bond investors demand higher yield spreads because tax increases aggravate firms' default risk by increasing firm leverage and return volatility. Moreover, we extend our analysis to equity holders and report a negative relation between stock market reaction to bond issuances subject to state tax increases.

Talking fragmentation away – Decoding the ’whatever it takes’ effect

In 2022, the ECB introduced a new instrument designed to combat fragmentation in euro area government bond yields. To assess the ECB’s effectiveness in addressing fragmentation through existing instruments, particularly communication, we turn to a pivotal historical event – Mario Draghi’s famous “whatever it takes” speech. Widely interpreted as a commitment by the ECB to act as a lender of last resort, this speech eased tensions in bond markets. Employing state-of-the-art computational linguistics, we create an index that quantifies the ECB’s commitment to act as a lender of last resort based on this historic speech. Our index highlights the ECB’s central role in stabilizing financial markets, especially during periods of heightened uncertainty.

Integrated prediction of green bond return under the dual risks of climate change and energy crisis

Prediction of bond return is a classic problem in financial area, providing an important basis for portfolio construction and risk management. The sustainable investment attribute of green bonds has been favored by investors, so that green bonds have become an important component for major asset allocation. However, due to the specific investment focus of green bonds, investors’ return expectations are influenced not only by traditional corporate bond factors, but also by related factors such as climate change and energy transition. Against the backdrop of increasingly severe climate risks and the global energy crisis, this paper analyses the volatility characteristics of China’s green bonds at multiple time scales, and introduces exogenous variables such as returns of the alternative financial assets, climate risks and returns of energy markets for prediction. Based on the LSTM model, the volatility of green bond yield at different time scales is separately predicted using optimal exogenous variable before integration. It is found that the new integrated prediction model can significantly improve the forecasting performance compared to traditional single LSTM models and simple decomposition-integrated models. Further, both climate risks and energy markets variables have a significant improvement effect on predicting green bond in low-frequency item, while energy markets variables also have a better predictive effect on trend items. Building on the use of only LSTM model, it could be further enhanced by integrating more algorithms to select the best single model for each component, further improve the prediction accuracy and provide a more effective quantitative tool for investment decision-making and risk management in related fields.

Clustering effects and evolution of the global major 10-year government bond market structure: A network perspective

This paper takes the 10-year government bond yields of 40 important economies in the world as the research object, aiming to establish a global major government bond market network based on the graph approach and construct an evaluation system to understand the clustering effects of different economies in some important global financial events and the evolution of market structure. Based on the rich information provided by the minimum spanning tree and planar maximally filtered graph, our empirical research results indicate that economies in the government bond market network exhibit clustering effects due to geographical proximity and similar yield levels. The GIIPS economies in Europe formed a core cluster during the European debt crisis period and the initial stage of the COVID-19 outbreak and formed clustering effects with other high-yield economies. In the initial stage of Sino-US trade friction, the market formed the phenomenon of European-American clusters and Asia-Pacific clusters. We also observed that in the complete research interval from 2010 to 2021, Germany and Netherlands had the strongest centrality, while the two largest economies in the world, the United States and China, also maintained close connections with them in the network structure. Through the interdisciplinary graph network approach, we hope to provide an effective perspective to observe and monitor the operation of the global government bond market.