Citations (2)



Information in the Term Structure of Yield Curve Volatility

Anna Cieslak

Northwestern University - Kellogg School of Management

Pavol Povala

Birkbeck, University of London

October 2013

We study volatility of US Treasuries. We propose a term structure model with stochastically correlated risks, which we estimate using realized volatilities and options. We identify time-varying volatilities and comovement of short-rate expectations and term premia. Volatility of short-rate expectations rises before recessions, predicts economic activity beyond the term spread, and covaries with measures of monetary policy uncertainty. Term premia become increasingly volatile in the aftermath of recessions and when economic policy uncertainty is high. Their correlation with expected short-rates fluctuates over time but is positive on average. Within an affine model, volatility has a small effect on the first moments of yields.

Number of Pages in PDF File: 51

Keywords: interest rate risk, realized yield covariance matrix, affine models, macro uncertainty, liquidity

JEL Classification: E43, C51

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Date posted: August 20, 2009 ; Last revised: October 25, 2013

Suggested Citation

Cieslak, Anna and Povala, Pavol, Information in the Term Structure of Yield Curve Volatility (October 2013). Available at SSRN: http://ssrn.com/abstract=1458006 or http://dx.doi.org/10.2139/ssrn.1458006

Contact Information

Anna Cieslak
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Pavol Povala (Contact Author)
Birkbeck, University of London ( email )
Malet Street
London, WC1E 7HX
United Kingdom
+44 (0) 20 7631 6486 (Phone)
HOME PAGE: http://www.ems.bbk.ac.uk/faculty/povala
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