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Indian G-Sec Market II: Anatomy of Short Rates

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  • Das, Rituparna

Abstract

This paper demonstrates how, without mechanically applying any formula like Nelson-Siegel or Nelson-Siegel-Svensson straight cut, a short term yield curve can intuitively be constructed with traded securities and then plugging the gaps with regression and cubic splines on case by case basis, which contains market information and gives enough room to scenario analysis for designing portfolio strategies. Opportunity of short run arbitrage is found non-existent. In terms of further research there is scope of running time series regression of short rates on 3 month MIBOR and one dummy variable for the news of RBI’s auction of dated securities. The patterns of spot rates, forward rates and par rates are similarly flat because the market participants seem not take any trade decisions on the eve of RBI auction and inflationary information content.

Suggested Citation

  • Das, Rituparna, 2010. "Indian G-Sec Market II: Anatomy of Short Rates," MPRA Paper 27553, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27553
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    References listed on IDEAS

    as
    1. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
    2. David Durand, 1942. "Basic Yields of Corporate Bonds, 1900-1942," NBER Chapters, in: Basic Yields of Corporate Bonds, 1900-1942, pages 1-40, National Bureau of Economic Research, Inc.
    3. David Durand, 1942. "Basic Yields of Corporate Bonds, 1900-1942," NBER Books, National Bureau of Economic Research, Inc, number dura42-1.
    4. Dutta, Goutam & Vaidyanathan K & Basu Shankarshan, 2002. "Term Structure Estimation in Illiquid Government Bond Markets: An Empirical Analysis for India," IIMA Working Papers WP2002-09-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
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    More about this item

    Keywords

    yield curve; term structure; treasury bill; dated security; short rate; spot rate; par yield; forward rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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