Yield Curve Research Articles

Extension of evaluated cross section database for charged particle monitor reactions

AbstractThe evaluation and deduction of recommended cross section values allowing extension of the database to monitor energy and intensity parameters of charged particle beams is presented. Included are 53 charged particle (p, d, 3He, 4He) induced reactions on suited C, Al, Ti, Fe, Ni, Cu, Nb and Au targets. The new data allow more systematic simultaneous use of multiple reactions on the same target and promote the backings of electrodeposited and sedimented targets as monitoring aids. Where possible the energy range is extended to above 100 MeV. Integral yield curves over the studied energy range are derived and compared to experimentally measured yields at specific energy points. A comparison with the theoretical excitation curve prediction of the TALYS-code as available in the TENDL 2021–2023 libraries is shown.

Near-term forward rate spread and commodity index relationship with real economic activity in Brazil

This study investigates the relationship between Brazilian economic cycles and two key indicators: the international S&P GSCI commodity index and the near-term forward spread derived from the Brazilian interest rate term structure. We find that the forward spread serves as a robust leading indicator of economic downturns in Brazil, offering recession forecasts up to four quarters in advance. This underscores a link between yield curve steepness and recession likelihood in Brazil. However, we uncover distinct cyclical behaviors in Brazil's term structure that diverge from patterns in the United States. Furthermore, our research reveals the significant influence of commodity price fluctuations on Brazil's economic performance, underscoring a strong correlation between commodity markets and economic outcomes. Examining term structure and commodity prices together provides novel insights into monitoring emerging market cycles. These indicators can assist policymakers and improve early warning systems, especially in developing economies like Brazil.

Absolute measurement of vacuum ultraviolet fluxes from inductively coupled plasmas via metal surface photoemission currents

Abstract Quantifying vacuum-ultraviolet (VUV) fluxes typically requires vacuum compatible spectrometers and is often associated with significant cost and effort. A simple technique for the absolute measurement of local VUV fluxes from plasmas using the photoemission from a set of coated metal plates, is described. The radiant power from a 13.56 MHz hydrogen plasma operating at 40-100 mTorr and with an RF input power from 100 to 120 W was investigated by irradiating a set of 2cm diameter Au, Ag and Cu plates. The variation in photoemission currents was compared with the photoelectric yield curves to estimate the absolute flux incident on the surfaces in the 113-190 nm range. The measured fluxes were found to have an uncertainty of 5 – 30% when compared with the VUV spectrometer measurements. The VUV output power was found to have a maximum at a pressure of 70-80 mTorr and to increase with RF power. In all cases, the VUV output power was measured to be approximately 12 - 16% of the RF input power to the matching network, in good agreement with spectroscopy results.

A Multicountry Model of the Term Structures of Interest Rates with a GVAR

Abstract Extant multicountry affine term structure models (ATSMs) handle global financial interdependence at the cost of increasing model dimensionality. To address this challenge, we propose a novel no-arbitrage ATSM with risk factor dynamics following a global vector-autoregressive (GVAR). Compared to referenced benchmarks, the GVAR − ATSM offers a more parsimonious representation, enables a faster estimation process, produces more precise model estimates, yields more plausible term premia dynamics, and improves bond yield out-of-sample forecasting. Furthermore, our empirical findings reveal the significant impact of China’s economic stances on Latin American yield curve dynamics, underscoring its importance as a global economic player.

Spillover effects of multidimensional information in Fed statements on China's bond market

This paper shows significant information spillover effects of Fed statements on China's bond market. Regarding Fed monetary policy statements as external shocks, we extract both monetary policy information and narrative sentiment information from the statements, with the sentiment data measured using the text analysis method. Furthermore, it investigates spillover effects of the multidimensional Fed information on investors' trading behaviors in China's bond market, using the event study method. Our study emphasizes three key findings. First, both monetary policy and textual sentiment within Fed statements influence trading decisions of China's bond investors, generating international spillover effects. Importantly, the role of textual sentiments as an additional spillover channel of Fed statements has been overlooked in existing literature. Second, the US monetary policy information influences investors' expectations of China's short-term interest rates and their perceptions of risks associated with holding China's long-term bonds, while the Fed's negative and uncertain sentiments primarily impact investors' short-term rate expectations. Moreover, the spillover effects of Fed sentiments on China's yield curve cannot be blocked by China's managed floating exchange rate regime. Third, the heterogeneity test reveals that spillover effects of multidimensional information in Fed conventional monetary policy statements on China's bond market are stronger than those of Fed unconventional monetary policy statements. These findings suggest that Fed narrative sentiments should be incorporated into the research framework of international spillover effect of monetary policy, especially amidst the current period characterized by growing anticipation of federal funds rate cuts and enduring monetary policy uncertainty, providing valuable insights for trading decisions of China's bond market investors.

Negative Interest Rate Policies: A Survey

This article surveys studies on the impact of central bank negative interest rate policies (NIRP). It reviews recent research on the effects of NIRP on financial markets, banks, households, firms, and the macroeconomy. Overall, policy rate cuts when interest rates are negative propagated along the yield curve, with the first policy cut below zero contributing significantly to the fall in longer-term yields. Lending and deposit rates also decreased following the adoption of NIRP. Based on the experience so far, bank lending volumes rose, and bank profits did not significantly deteriorate, although there was considerable heterogeneity in the effects. The impact of NIRP on inflation and output appears to have been comparable to that of conventional interest rate cuts.

Dynamic characteristics of expectations of short-term interest rate and a generalized Vasicek model

This study's principal mathematical deduction exploits the importance of the specification of long-term equilibrium level in the mean-reversion short-term interest rate model—such as the CKLS (Chan, Karolyi, Longstaff, and Sanders) model—to describe the dynamic characteristics of future short-term interest rate expectations, especially long-horizon expectations. Therefore, we present a preferred model by introducing a stochastic long-run equilibrium level factor to extend the specifications of the Vasicek model's short-term interest rate dynamics. Using this new type of short-term interest rate as a driver we develop a two-factor affine arbitrage-free model of term structure, the generalized Vasicek mode. The empirical results show that the model not only has a good sample fitting ability to the Chinese government bond yield curve, but also has better performance in capturing the dynamic characteristics of short-term interest rates and short-term interest rate expectations. This study provides not only a promising avenue for future research on improving interest rate modeling techniques and their practical applications in the financial industry but also a new literature base for accurately identifying public expectations and explaining the underlying mechanisms of expectation changes.

Reassessing the inversion of the Treasury yield curve as a sign of U.S. recessions: Insights from the housing and credit markets

Is yield curve inversion a reliable recession signal? Prior research on forecasting recessions investigates the role of the slope of the yield curve, housing, banking, and corporate credit spreads in isolation, without fully considering their interconnectedness. Therefore, we conduct a comprehensive investigation into the ability of house prices, residential investment, bank aggregate liquidity creation (LC) and credit (BC), and corporate credit spreads to forecast recessions. For the 1973–2023 sample, after accounting for the slope of the yield curve, our in- and out-of-sample results show that: i) house prices and credit spreads signal recessions—house prices decline, and credit spreads rise ahead of recession quarters; ii) residential investment’s recession forecasting ability is not as robust as house prices; iii) the recession forecasting ability of LC or BC diminishes when we include other indicators. These findings provide important insights into the interconnectedness among economic indicators and their relationship with recessions. Importantly, we demonstrate that the inversion of the yield curve alone is not the surest sign of a recession. For a recession to occur, house prices must decline, and corporate credit spreads must significantly increase.

Evaluating the yield curve effects of central bank asset purchases under a forward-looking supply factor

The theoretical literature on term structure models emphasizes the importance of the expected absorption of duration risk during the residual life of term bonds in order to understand the yield curve effect of central banks’ government bond purchases. Motivated by this, we develop a forward-looking, long-horizon measure of euro area government bond supply net of Eurosystem holdings, and use it to estimate the impact of the ECB’s asset purchase programs in the context of a no-arbitrage affine term structure model. We find that an asset purchase shock equivalent to 10% of euro area GDP lowers the 10-year average yield of the euro area big-four by 59 basis points (bp) and the associated term premium by 50 bp. Applying the model to the risk-free (OIS) yield curve, the same shock lowers the 10-year rate and term premium by 35 and 26 bp, respectively.

A population balance model for the kinetics of covalent organic framework synthesis.

This study presents a population balance model for the kinetics of nucleation and growth in covalent organic framework (COF) synthesis. The model incorporates second-order nucleation and first-order growth rates, consistent with proposals in the literature. Despite having non-linear terms, an implicit analytic solution is derived and then converted to explicit solutions for the monomer concentration and size distribution of COF flakes as a function of time. For experimental definitions of the induction time and the initial growth rate based on yield (y) vs time (t) curves, the model predicts power-law relationships: tind=0.409kN-1/3kG-2/3cA0-1 and dy/dtmax=0.965kN1/3kG2/3cA0, respectively. We discuss the implications for the interpretation of Arrhenius plots. We also discuss key discrepancies with experiments, including the predicted attainment of 100% yield instead of 30%-40% as observed and the value of the yield at the inflection point in the yield vs time curve. We suggest extensions to the model, including nucleation and growth kinetics with equilibrium solubility limitations and two-dimensional nucleation for the formation of multilayer COF particles.

The shape of the Treasury yield curve and commodity prices

We decompose the U.S. yield curve into three latent factors – the level, slope and curvature – and explore the information content of the yield curve regarding the future evolution in oil, coal, copper, ethanol, gold, heating oil, natural gas, palladium, platinum, silver and zinc prices. Using data from January 1986 to November 2021, we find that the shape of the term structure is very informative about future innovations in these commodities. Results indicate that shocks to the level, which represents long-term expectations about inflation, predict positive (negative) price (volatility) changes. Shocks to the slope and curvature, which are interpreted as part of the business cycle conditions, predict negative price changes. These results are manifested mainly in the period after the financialization era in 2004. Our findings have far-reaching implications for investors, policymakers and firms involved in the mining industry.

Atomistic investigation of effect of alloying on mechanical properties and microstructural evolution of ternary FeCo-X (X = V, Nb, Mo, W)

This atomistic simulation study delves into the impact of V, Nb, Mo, and W on the mechanical properties of equiatomic FeCo, employing the modified embedded atom method (MEAM). An analysis of individual effects on antiphase boundary (APB) energies reveals a consistent reduction along preferred slip planes, except for Nb. Monte Carlo-molecular dynamics (MC-MD) simulations were used to explore the diffusion behavior of these solutes, highlighting their dynamic interactions and preference to migrate into the grain boundaries (GB).Tensile simulations conducted on nanocrystalline (NC) models oriented in different directions unveil comparable stress–strain curves, displaying continuous yielding with a humpy yield curve that varies with the straining orientation. Notably, W emerged as the most effective addition enhancing the ultimate tensile strength (UTS). Microcrack nucleation development differ depending on the straining direction. In binary FeCo and in the alloy with Mo additions, void development was observed at grain boundary (GB) triple junctions, while with V and W additions, it occurred at the intersection of a slip band and a GB, with limited propagation in both scenarios. In contrast, Nb additions show enhanced stress accommodation through slip band formation within grains, preventing microcrack development. These discoveries offer valuable insights on the impact of alloying elements on the mechanical behavior of ternary FeCo-X (X = V, Nb, Mo, W) alloys.

The impact of macroeconomic news sentiment on interest rates

We provide evidence that sentiment extracted from articles related to interest rates, inflation, and the labor market has the ability to explain short-term interest rate movements that cannot be accounted for by professionals’ and consumers’ expectations. Additionally, sentiment can pin down two short rate regimes that are correlated with the business cycle. By combining these results with a yield curve model, we find that market sentiment has a statistically significant negative effect on the short end of the yield curve and a positive effect on the slope. We also show that sentiment improves the out-of-sample forecast accuracy of short-term yields.

Foreign trade and China’s yield curve during the COVID-19 pandemic: An analysis based on an extended arbitrage-free Nelson–Seigel model

We propose a general extension of the arbitrage-free Nelson–Seigel (AFNS) model by incorporating exogenous factors into the unspanned AFNS model. Regarding the number of people newly diagnosed with COVID-19 as an exogenous shock and net foreign purchases of treasury bonds of different maturities as unspanned factors, we study the impacts of the COVID-19 pandemic and the trading behavior of foreign investors on the yield curve in China. Our empirical results show that the COVID-19 pandemic significantly increases net foreign purchases of short-to-medium-term treasury bonds while significantly reducing the long-term treasury yield. Net foreign purchases of treasury bonds of different maturities cause large shifts with different shapes in the yield curve and have different effects on the excess returns of bonds of different maturities. This paper provides an important reference for risk management, investment decision-making and risk assessment of China’s financial opening policy for its treasury bond market.

Utility of Smoothing Techniques in Yield Curve Modeling for the Asian Pacific Frontier Capital Market

Utility of Smoothing Techniques in Yield Curve Modeling for the Asian Pacific Frontier Capital Market

Is the Balance Sheet Expansions of the Central Banks Inadequate? The Case of Japan

The Bank of Japan has continued monetary expansion to combat deflation for over twenty years. However, in March 2024, the Bank raised the negative policy interest rate that had lasted eight years and two months. From now on, the Bank should cope with huge balance sheet expansion. Although yield curve control (YCC) has been abolished, long-term interest rates will continue to be controlled to some degree since the Bank will continue to purchase long-term government bonds. New purchases of exchange-traded funds (ETFs) have been completed, but the main measures of normalization, such as removing ETFs from the huge balance sheet, will not be implemented easily because of increasing risk of stock prices decreasing. Consequently, there will be some possibilities to lead to a rise in long-term interest rates, a strong yen (a decrease in exports), and also to a decline in stock prices. Empirical analyses are conducted to examine the effects of monetary expansion and the results are positive, however, this study emphasizes the importance of the credibility of central banks.

SDEWES 2023: Barriers and Possibilities for the Development of Short-Rotation Coppice as an Agroforestry System for Adaptation to Climate Change in Central European Conditions

This article compares different production, economic, and selected environmental aspects of agroforestry systems in a standard (alley cropping) and a newly proposed design with fast-growing trees grown in short-rotation coppice. Our models of agroforestry systems (AFSs) are as follows: (i) alley cropping AFS with cherry and walnut trees in single rows (tree strips) with 28 m-wide arable fields between them (crop strips), and (ii) coppiced tree belt AFS with poplars and willows and 25 m-wide arable fields between them (crop strips). To evaluate the production characteristics of trees, we used yield curves from experimental plantations in conditions of the Czech Republic from previous research projects. Cost data were collected from long-term experimental plantations and combined with current operation and energy prices. The article presents an economic methodology for assessing the competitiveness of biomass production in AFSs under the current identified market conditions. Our results show that AFSs with short-rotation coppice can have similar economic and production results as annual crops if grown on suitable sites and with appropriate quality of agronomy. In comparison, alley cropping AFSs with fruit trees would not be economically viable for farmers without a significant subsidy for establishment and maintenance in the first years after establishment. Concerning the latest economic and political developments, the product from SRC (energy woodchips) can be evaluated as strategic, increasing the producer’s independence from purchased energy fuels.

A consumption-based term structure model of bonds and equity

In this study, I propose a consumption-based asset pricing model to capture the dynamic properties of term structures of bonds and equity. I extend the long-run risks model by introducing a mean-reversion of dividend growth and the external habit formation of a representative agent. The mean-reverting dividend growth generates a negative equity term premium, while the habit formation augments the equity premium and renders an upward-sloping bond yield curve, on average. In addition, fluctuations in the surplus consumption ratio and the conditional variance of consumption growth allow the model to reproduce pro-cyclical variations in bond and equity yield spreads and counter-cyclical variations in bond and equity term premiums, as observed in the U.S. data.

Econometric Model Using Arbitrage Pricing Theory and Quantile Regression to Estimate the Risk Factors Driving Crude Oil Returns

This work presents a novel approach to determining the risk and return of crude oil stocks by employing Arbitrage Pricing Theory and Quantile Regression. Arbitrage Pricing Theory identifies the risk factors likely to impact crude oil returns. Subsequently, Quantile Regression estimates the relationship between the selected factors and the returns across different distribution quantiles. The West Texas Intermediate (WTI) crude oil price is used in this study as a benchmark for crude oil prices. WTI’s price fluctuations can significantly impact the performance of global crude oil stocks and, subsequently, the global economy. Various statistical measures are used in this study to determine the proposed model's stability. The results show that changes in WTI returns can have varying effects depending on market conditions and levels of volatility. This study emphasizes the influence of structural discontinuities on returns. These are likely generated by changes in the global economy and the unpredictable demand for crude oil during the pandemic. The inclusion of pandemic, geopolitical, and inflation-related explanatory variables adds uniqueness to the study as it considers current global events that can affect crude oil returns. Findings show that the key factors that pose significant risks to returns are industrial production, inflation, the global price of energy, the shape of the yield curve, and global economic policy uncertainty. This implies that while making investment decisions in WTI futures, investors should pay particular attention to these elements.

The mean–variance (in)efficiency of duration‐based immunization

AbstractEmpirical studies report inconclusive assessment of duration‐based immunization, notably showing that more sophisticated strategies do not outperform immunization relying on Macaulay duration. This article provides a mean–variance framework to explain this puzzle. We characterize the efficient portfolio allocations for a stylized barbell strategy trading off reinvestment risk with discounting risk. We show, in a model‐free setting, that barbell allocations form a convex set in the mean–variance space, and the endpoints of the efficient frontier can switch as time passes, reversing the set of efficient allocations. Consequently, duration‐based immunization, which is not minimum variance, can exhibit temporary inefficiency. This result is numerically illustrated in a one‐factor Gaussian and a two‐factor non‐Gaussian model. Using yield curve scenarios resampled from U.S. data over the 1977–2020 period, we further corroborate our conclusions non‐parametrically, and find that duration‐based immunization is sometimes inefficient.