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Deconstructing the Yield Curve

Author

Listed:
  • Richard K Crump
  • Nikolay Gospodinov

Abstract

We introduce a novel nonparametric bootstrap for the yield curve that is agnostic to the true factor structure of interest rates. We deconstruct the yield curve into primitive objects, with weak cross-sectional and time-series dependence, that serve as building blocks for resampling the data. We analyze the properties of the bootstrap for mimicking salient features of the data and conducting valid inference. We demonstrate the benefits of our general method by revisiting the predictability of bond returns based on slow-moving fundamentals. We find that trend inflation, but not the equilibrium real rate, has predictive power for future bond returns.

Suggested Citation

  • Richard K Crump & Nikolay Gospodinov, 2025. "Deconstructing the Yield Curve," The Review of Financial Studies, Society for Financial Studies, vol. 38(2), pages 381-421.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:2:p:381-421.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae077
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    Keywords

    G10; G12; C15; C58;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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