Global bond risk premia under falling stars

Yugui Zhang, Jie Zhu and Xiaoneng Zhu

Finance Research Letters, 2021, vol. 42, issue C

Abstract: Treasury yields in the global bond market exhibit a secular decline in the past four decades. We show that this long-run trend of yield curve is associated with two key macroeconomic variables, the trend inflation and the equilibrium real short rate. These variables demonstrate substantial variation over time. Accounting for time variation of these macro trends is crucial for understanding yield dynamics. Changes in both trends can explain high persistence in interest rates. Furthermore, substantial predictive gain is obtained by including both trends in the predictive regression for bond risk premia in international bond markets.

Keywords: Interest rate forecast; Predictive regression; Macroeconomic trend; Shifting endpoints; Trend estimation (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s154461232031730x

DOI: 10.1016/j.frl.2020.101916

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