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Global bond risk premia under falling stars

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  • Zhang, Yugui
  • Zhu, Jie
  • Zhu, Xiaoneng

Abstract

Treasury yields in the global bond market exhibit a secular decline in the past four decades. We show that this long-run trend of yield curve is associated with two key macroeconomic variables, the trend inflation and the equilibrium real short rate. These variables demonstrate substantial variation over time. Accounting for time variation of these macro trends is crucial for understanding yield dynamics. Changes in both trends can explain high persistence in interest rates. Furthermore, substantial predictive gain is obtained by including both trends in the predictive regression for bond risk premia in international bond markets.

Suggested Citation

  • Zhang, Yugui & Zhu, Jie & Zhu, Xiaoneng, 2021. "Global bond risk premia under falling stars," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s154461232031730x
    DOI: 10.1016/j.frl.2020.101916
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    References listed on IDEAS

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    Cited by:

    1. Dai, Haiyan & Dong, Xueqin & Xue, Fang, 2024. "Corporate credit risk and bond yield spreads: Market reactions to the spreads," Finance Research Letters, Elsevier, vol. 67(PB).

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    More about this item

    Keywords

    Interest rate forecast; Predictive regression; Macroeconomic trend; Shifting endpoints; Trend estimation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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