On the predictability of bonds

Robert Verner and Michal Tkáč

Finance Research Letters, 2023, vol. 57, issue C

Abstract: From a global perspective, bonds represent an important source of funding not only for companies but also for governments and multinational entities. Therefore, the analysis of their prices and yields is of long-term interest to academic research. This work deals with the break-even point in the behavior of bond prices, after which they no longer move by random walk based on standard micro and macroeconomic variables but converge linearly to the nominal value. From the investor's point of view, it no longer makes sense to speculate on a significant rise or fall in price after this point, and the bond acquires only a fixed income character. On a sample of 652 bonds listed on the Frankfurt Stock Exchange, we showed that the break-even point is located approximately 400 days before maturity, regardless of the total period of existence of the bond.

Keywords: Autoregression; Bonds; Break-even point; Prices; Yields (search for similar items in EconPapers)
JEL-codes: G12 G17 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005536

DOI: 10.1016/j.frl.2023.104181

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