The Financial Crisis and the Changing Dynamics of the Yield Curve

20 Pages Posted: 20 Jun 2012

See all articles by Morten L. Bech

Morten L. Bech

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures

Yvan Lengwiler

University of Basel - Faculty of Business and Economics (WWZ)

Date Written: May 2012

Abstract

We present evidence on the changing dynamics of the yield curve from 1998 to 2011. We identify four different phases. As expected, the financial crisis represents a period of elevated yield volatility, but it can be split into two distinct periods. The split occurs when the Federal Reserve reached the zero lower bound. This bound suppressed volatility in the short end of the yield curve while increasing volatility in the long end – despite lower overall volatility in financial markets. In line with previous studies, we find that announcements with regard to the Federal Reserve’s large scale asset purchases reduce longer term yields. We also quantify the effect of widely observed economic news, such as the non-farm payrolls and other items, on the yield curve.

Full publication: Threat of fiscal dominance?

Keywords: Term structure of interest rates, financial crisis, interest rate dynamics, LSAP, unconventional monetary policy

JEL Classification: E43, E52

Suggested Citation

Bech, Morten L. and Lengwiler, Yvan, The Financial Crisis and the Changing Dynamics of the Yield Curve (May 2012). BIS Paper No. 65o, Available at SSRN: https://ssrn.com/abstract=2081972

Morten L. Bech (Contact Author)

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
41612808923 (Phone)

Yvan Lengwiler

University of Basel - Faculty of Business and Economics (WWZ) ( email )

Peter Merian-Weg 6
PO Box
Basel, CH-4002
Switzerland
+41 61 267 3369 (Phone)

HOME PAGE: http://wwz.unibas.ch/lengwiler

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