Modelling Sovereign Bond Yield Curves of the US, Japan and Germany

Chi-sang Tam and Ip-wing Yu
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Chi-sang Tam: Research Department, Hong Kong Monetary Authority
Ip-wing Yu: Research Department, Hong Kong Monetary Authority

No 709, Working Papers from Hong Kong Monetary Authority

Abstract: The movement of sovereign yields is important for both investment and risk management. In this paper, we apply a method that was first developed by Diebold et al (2006b) to model the sovereign bond yield curves of the US, Japan and Germany. By including observable macroeconomic variables and the latent factors of the yield curve, we find evidence of strong interaction between the yield curve and macro variables in the US and Germany but not in Japan. We also estimate the dynamic conditional correlations of the latent factors to reveal cross-country correlations of the bond markets.

Keywords: Yield curve; Term structure; Interest rate; Kalman filter (search for similar items in EconPapers)
JEL-codes: C5 E4 G1 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2007-06
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0709

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