Reconstructing the Yield Curve
85 Pages Posted: 28 Nov 2018 Last revised: 30 Dec 2020
Date Written: January 21, 2019
The constant-maturity zero-coupon Treasury yield curve is one of the most studied datasets. We reconstruct the yield curve using a non-parametric kernel-smoothing method with a novel adaptive bandwidth specifically designed to fit the Treasury yield curve. Our curve is globally smooth while still capturing important local variation. Economically, we show that applying our data leads to different conclusions from using the leading alternative data of Gurkaynak et al. (2007) (GSW) when we repeat two popular studies of Cochrane and Piazzesi (2005) and Giglio and Kelly (2018). Statistically, we show our dataset preserves information in the raw data and has much smaller pricing errors than GSW. Our new yield curve is maintained and updated online, complemented by bandwidths that summarize information content in the raw data.
Keywords: yield curve, non-parametric, term structure, excess volatility, return forecasting
JEL Classification: G12, C58, C13, C14
Suggested Citation: Suggested Citation