Forecasting the Australian Yield Curve

Australasian Journal of Applied Finance, Issue 3, 2019

12 Pages Posted: 19 Mar 2020

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Bonnie Li

Government of Victoria - Department of Treasury and Finance

Maryam Nasiri

Government of Victoria - Department of Treasury and Finance

Ravi Sastry

University of Melbourne - Department of Finance

Date Written: July 31, 2019

Abstract

We apply a number of forecasting models to Australian Government Bond yields. All methods rely solely on the history of yields. Consistent with findings from US Treasury data, we show that the simplest forecasting models across all maturities and forecasting horizons are also generally the best: the forward yield (when available) and the random walk model. Models with more structure — e.g. principal components and Bayesian vector autoregression — can help forecast overnight yields at very short horizons, but provide little or no improvement in other cases.

Keywords: forecasting, term structure, Australian government bonds

JEL Classification: C58, G12

Suggested Citation

Brugler, James and Li, Bonnie and Nasiri, Maryam and Sastry, Ravi, Forecasting the Australian Yield Curve (July 31, 2019). Australasian Journal of Applied Finance, Issue 3, 2019, Available at SSRN: https://ssrn.com/abstract=3543214

James Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Bonnie Li

Government of Victoria - Department of Treasury and Finance ( email )

Melbourne
Australia

Maryam Nasiri

Government of Victoria - Department of Treasury and Finance ( email )

Melbourne
Australia

Ravi Sastry

University of Melbourne - Department of Finance ( email )

Level 12
198 Berkeley Street
Victoria 3010
Australia

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