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Risks in macroeconomic fundamentals and excess bond returns predictability
Monetary Policy Department, Sveriges Riksbank, Stockholm, Sweden .
2015 (English)Report (Other academic)
Abstract [en]

I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond returns. The main predictor factors are associated with point expectations of real economic activity, uncertainty about real GDP growth, and downside and upside risks in housing starts and the unemployment rate. In addition, factors provide information about bond risk premia variation that is largely unrelated to that contained in the Cochrane-Piazzesi and Ludvigson-Ng factors. These results are confirmed statistically and economically in an out-of-sample setting and hold when factors are constructed using macroeconomic data available in real-time. All together, these findings suggest that risks to macroeconomic fundamentals are an important source of fluctuations in the US government bond market.

Place, publisher, year, edition, pages
Stockholm: Sveriges Riksbank , 2015. , p. 56
Series
Sveriges Riksbank Working Paper Series ; 295
Keywords [en]
expectations hypothesis; term structure of interest rates; ex ante macroeconomic risks; bond risk premia; macro risk factors
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-51476OAI: oai:DiVA.org:hj-51476DiVA, id: diva2:1517257
Available from: 2021-01-13 Created: 2021-01-13 Last updated: 2021-01-13Bibliographically approved

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De Rezende, Rafael B.

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CiteExportLink to record
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Citation style
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Output format
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  • asciidoc
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