The Yield of Constant Maturity 10-Year US Treasury Notes

Rafael Weiβbach, Wladyslaw Poniatowski and Guido Zimmermann

Chapter 1 in Nonlinear Financial Econometrics: Forecasting Models, Computational and Bayesian Models, 2011, pp 3-17 from Palgrave Macmillan

Abstract: Abstract Due to their status as the most important benchmark yield for the world’s largest government bond market and its importance for US monetary policy, the interest in an accurate forecast of the constant maturity yields of 10-year US Treasury notes (T-note yields) is immense.2 Hence, it does not surprise that a large body of literature is devoted to forecasting T-note yields.3 The existing empirical literature approaches the problem of bond yield determination via 1. exploring fundamental factors; 2. high-frequency data; 3. international transmission of shocks with respect to bond markets; 4. combinations of bond modeling strategies from a finance and macro perspective.4 However, if a random walk process describes bond yields accurately, then much of the efforts devoted to forecasting stock returns and bond yields are of questionable value.5 Yet, the literature (see Aburachis and Kish 1999) shows that bonds yields do not follow a pure random walk. Theoretical and empirical evidence exists — at least for the long term — for the dependence of interest rates on fundamental factors (see Warnock and Warnock 2005; Hoffmann and MacDonald 2006).

Keywords: Interest Rate; Monetary Policy; Federal Reserve; Bond Market; Constant Maturity (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1057/9780230295223_1

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