Unspanned Macroeconomic Factors in the Yield Curve

Abstract

In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.

Keywords: Yield curve, government bonds, factor models, forecasting

JEL Classification: C33, C53, E43, E44, G12