Unspanned Macroeconomic Factors in the Yield Curve
49 Pages Posted: 23 Aug 2014
Date Written: July 30, 2014
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
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