Updating the Yield Curve to Analyst’s Views

Leonardo M. Nogueira

Chapter 2 in Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds, 2010, pp 31-43 from Palgrave Macmillan

Abstract: Abstract Fixed income analysts are accustomed to monitoring a few benchmark yields on a continuous basis and providing point estimates for these yields, or for a combination of them. Yet, the optimization of fixed income portfolios requires an accurate forecast of not only a few benchmark yields, but of complete yield curves. This chapter derives a forecast of one or more yield curves that is consistent with analysts’ views. The model is based on a novel application of principal component analysis (PCA). It can be extended to other markets and has no restrictions on the number of forecast variables, or the number of views. We consider examples of forecasting the government bond yield curves of the US, the Eurozone and the UK, simultaneously or not.

Keywords: Yield Variation; Yield Curve; Market Risk; Fixed Income; Forecast Variable (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-25129-8_2

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DOI: 10.1057/9780230251298_2

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