The yield of ten year T-bonds: stumbling towards a ‘good’ forecast
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Date
2007-02-21T14:43:16Z
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Abstract
Due to their status as “the” benchmark yield for the world’s largest government bond
market and its importance for US monetary policy, the interest in a “good” forecast of
the constant maturity yield of the 10-year U.S. Treasury bond (“T-bond yields”) is immense.
This paper assesses three univariate time series models for forecasting the yield
of T-bonds: It shows that a simple SETAR model proves to be superior to the random
walk and an ARMA model. However, dividing the sample of bond yields, dating from
1962 to 2005, into a training sample and a test sample reveals the forecast to be biased.
A new bias-corrected version is developed and forecasts for March 2005 to February
2006 are presented. In addition to point estimates forecast limits are also given.
JEL subject classifications: E47, C52
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Keywords
10-year yield, Bias-correction, Non-linear time series, TAR model, T-bond, Times series