Oil price shocks and the term structure of the US yield curve: a time–frequency analysis of spillovers and risk transmission

Zaghum Umar (), Mariya Gubareva (), Tamara Teplova () and Wafa Alwahedi ()
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Zaghum Umar: Zayed University
Mariya Gubareva: ISEG – Lisbon School of Economics & Management, Universidade de Lisboa
Tamara Teplova: National Research University Higher School of Economics/HSE University
Wafa Alwahedi: Zayed University

Annals of Operations Research, 2025, vol. 352, issue 3, No 3, 363-387

Abstract: Abstract This paper investigates the influence of oil demand, oil supply, and risk-driven shocks on the yield curve in the US between 1995 and 2020. The US term-structure shape is modeled by three structural factors, the level, slope, and curvature. Their empirical analysis is performed according to the Diebold-Li modified variant of the widely used Nelson-Siegel model. The technique of wavelet analysis allows investigating the interrelation of shocks in oil prices and the US yield curve along time and frequency domains, simultaneously. We report on low, medium, and high coherence zones, relative to the oil price movements and the changes in the three yield-curve factors. The low coherence intervals indicate the potential for the three latent factors to be used for creating diversification strategies capable of hedging adverse dynamics in the oil market, potentially workable through global crises. We document the variability of dynamic patterns observable for the US sovereign yield factors on per-type-of-shock basis, evidencing the potential role of the US sovereign debt investments for designing cross-asset hedge strategies for commodity and fixed-income markets.

Keywords: Yield-curve structural factors; Oil-demand shocks; Oil-supply shocks; Risk-driven shocks; Wavelet coherence phase-difference; Causality; Leads and lags; Global financial crisis; Covid-19; Diversification attributes; Hedge strategies (search for similar items in EconPapers)
JEL-codes: C22 C32 C49 C53 C58 E43 E44 F3 F36 F37 G12 G15 Q41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10479-022-04786-1

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