The Bond Yield "Conundrum" from a Macro-Finance Perspective

Glenn Rudebusch, Eric Swanson and Tao Wu ()

Monetary and Economic Studies, 2006, vol. 24, issue S1, 83-109

Abstract: In 2004 and 2005, long-term interest rates remained remarkably low despite improving economic conditions and rising short- term interest rates, a situation that then-Federal Reserve Board Chairman Alan Greenspan dubbed a "conundrum." We document the extent and timing of this conundrum using two empirical no-arbitrage macro-finance models of the term structure of interest rates. These models confirm that the recent behavior of long-term yields has been unusual-that is, it cannot be explained within the framework of the models. Therefore, we consider other macroeconomic factors omitted from the models and find that some of these variables, particularly declines in long-term bond volatility, may explain a portion of the conundrum. Foreign official purchases of U.S. Treasuries appear to have played little or no role.

Keywords: Term structure; Term premium; Bond pricing; Affine no-arbitrage model (search for similar items in EconPapers)
JEL-codes: E43 E44 G12 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
https://www.imes.boj.or.jp/research/papers/english/me24-s1-6.pdf (application/pdf)

Related works:
Working Paper: The bond yield \"conundrum\" from a macro-finance perspective (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ime:imemes:v:24:y:december:i:s1:p:83-109

Access Statistics for this article

More articles in Monetary and Economic Studies from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().