[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1789.html
   My bibliography  Save this paper

Long-Term Behavior of Yield Curves

Author

Listed:
  • Charles R. Nelson
  • Andrew F. Siegel
Abstract
The flattening of yield curves at long-term maturities is proven to be approximately proportional to the reciprocal of the time to maturity under general conditions. This is a consequence of the persistence of earlier forward rates in the averaging process which produces yields from forward rates. This relationship suggests the use of a"reciprocal maturity yield curve" which significantly facilitates the interpretation of the behavior of long-term yields by linearizing them for display over a shorter interval. This is illustrated using a yield curve for U.S.Treasury bills.

Suggested Citation

  • Charles R. Nelson & Andrew F. Siegel, 1986. "Long-Term Behavior of Yield Curves," NBER Working Papers 1789, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1789
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1789.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1981. "A Re-examination of Traditional Hypotheses about the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 36(4), pages 769-799, September.
    2. Livingston, Miles B & Jain, Suresh K, 1982. "Flattening of Bond Yield Curves for Long Maturities," Journal of Finance, American Finance Association, vol. 37(1), pages 157-167, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert R. Bliss & Ehud I. Ronn, 1997. "Callable U.S. Treasury bonds: optimal calls, anomalies, and implied volatilities," FRB Atlanta Working Paper 97-1, Federal Reserve Bank of Atlanta.
    2. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    4. Paccagnini, Alessia, 2016. "The macroeconomic determinants of the US term structure during the Great Moderation," Economic Modelling, Elsevier, vol. 52(PA), pages 216-225.
    5. Mr. Rodrigo Cabral & Mr. Richard Munclinger & Mr. Luiz Alves & Mr. Marco Rodriguez Waldo, 2011. "On Brazil’s Term Structure: Stylized Facts and Analysis of Macroeconomic Interactions," IMF Working Papers 2011/113, International Monetary Fund.
    6. P. Byrne, Joseph & Cao, Shuo & Korobilis, Dimitris, 2015. "Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty," SIRE Discussion Papers 2015-71, Scottish Institute for Research in Economics (SIRE).
    7. Francis X. Diebold, 2004. "The Nobel Memorial Prize for Robert F. Engle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 165-185, June.
    8. Yallup, Peter J., 2012. "Models of the yield curve and the curvature of the implied forward rate function," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 121-135.
    9. Schich, Sebastian T., 1996. "Alternative Spezifikationen der deutschen Zinsstrukturkurve und ihr Informationsgehalt hinsichtlich der Inflation," Discussion Paper Series 1: Economic Studies 1996,08, Deutsche Bundesbank.
    10. Daniel L. Thornton, 2005. "Predictions of short-term rates and the expectations hypothesis of the term structure of interest rates," Working Papers 2004-010, Federal Reserve Bank of St. Louis.
    11. Mabelle Sayah, 2016. "Analyzing and Comparing Basel's III Sensitivity Based Approach for the interest rate risk in the trading book," Post-Print hal-01217928, HAL.
    12. Ales Marsal & Lorant Kaszab & Roman Horvath, 2017. "Government Spending and the Term Structure of Interest Rates in a DSGE Model," Working and Discussion Papers WP 3/2017, Research Department, National Bank of Slovakia.
    13. Madura, J. & Wiley, M. K. & Zarruk, E. R., 1998. "Cointegration of term structure premiums across countries," Journal of Multinational Financial Management, Elsevier, vol. 8(4), pages 393-412, November.
    14. C. Emre Alper & Aras Akdemir & Kazim Kazimov, 2004. "Estimating the Term Structure of Government Securities in Turkey," Working Papers 2004/03, Bogazici University, Department of Economics.
    15. Guidolin, Massimo & Thornton, Daniel L., 2018. "Predictions of short-term rates and the expectations hypothesis," International Journal of Forecasting, Elsevier, vol. 34(4), pages 636-664.
    16. repec:hal:wpaper:hal-01217928 is not listed on IDEAS
    17. P. Byrne, Joseph & Cao, Shuo & Korobilis, Dimitris, 2015. "Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-71, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    18. Almeida, Caio & Lund, Bruno, 2014. "Immunization of Fixed-Income Portfolios Using an Exponential Parametric Model," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 34(2), November.
    19. Cem Çakmakli, 2012. "Bayesian Semiparametric Dynamic Nelson-Siegel Model," Working Paper series 59_12, Rimini Centre for Economic Analysis, revised Sep 2012.
    20. Byrne, Joseph P. & Cao, Shuo & Korobilis, Dimitris, 2017. "Forecasting the term structure of government bond yields in unstable environments," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 209-225.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrea J. Heuson, 1988. "The Term Premia Relationship Implicit In The Term Structure Of Treasury Bills," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(1), pages 13-20, March.
    2. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    3. Tzavalis, Elias & Wickens, Michael, 1998. "A Re-examination of the Rational Expectations Hypothesis of the Term Structure: Reconciling the Evidence from Long-Run and Short-Run Tests," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 229-239, July.
    4. Gollier, Christian, 2016. "Gamma discounters are short-termist," Journal of Public Economics, Elsevier, vol. 142(C), pages 83-90.
    5. J. Doyne Farmer & John Geanakoplos & Matteo G. Richiardi & Miquel Montero & Josep Perelló & Jaume Masoliver, 2024. "Discounting the Distant Future: What Do Historical Bond Prices Imply about the Long-Term Discount Rate?," Mathematics, MDPI, vol. 12(5), pages 1-25, February.
    6. Panagiotis T. Konstantinou, 2005. "The Expectations Hypothesis of the Term Structure : A Look at the Polish Interbank Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 41(3), pages 70-91, May.
    7. Frachot, Antoine, 1996. "A reexamination of the uncovered interest rate parity hypothesis," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 419-437, June.
    8. repec:adr:anecst:y:1998:i:52:p:01 is not listed on IDEAS
    9. Bronsard, C. & Rosenwald, F. & Salvas-Bronsard, L., 1994. "Evidence on Corporate Private Debt Finance and the Term Structure of Interest Rates," Cahiers de recherche 9405, Universite de Montreal, Departement de sciences economiques.
    10. Tzavalis, Elias & Wickens, Michael R, 1997. "Explaining the Failures of the Term Spread Models of the Rational Expectations Hypothesis of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 364-380, August.
    11. Freeman, Mark C. & Groom, Ben, 2016. "How certain are we about the certainty-equivalent long term social discount rate?," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 152-168.
    12. Bharati, Rakesh & Nanisetty, Prasad & So, Jacky, 2006. "Dynamic gap transformations: Are banks asset - transformers or brokers? or both?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 36-52, February.
    13. Sanjay K. Nawalkha & Xiaoyang Zhuo, 2020. "A Theory of Equivalent Expectation Measures for Contingent Claim Returns," Papers 2006.15312, arXiv.org, revised May 2022.
    14. Boero, G. & Torricelli, C., 1996. "A comparative evaluation of alternative models of the term structure of interest rates," European Journal of Operational Research, Elsevier, vol. 93(1), pages 205-223, August.
    15. Antulio N. Bomfim, 2003. "Monetary policy and the yield curve," Finance and Economics Discussion Series 2003-15, Board of Governors of the Federal Reserve System (U.S.).
    16. Antonio Díaz & Francisco Jareño & Eliseo Navarro, 2022. "Yield curve data choice and potential moral hazard: An empirical exercise on pricing callable bonds," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2124-2145, April.
    17. Dunn, Kenneth B. & Singleton, Kenneth J., 1986. "Modeling the term structure of interest rates under non-separable utility and durability of goods," Journal of Financial Economics, Elsevier, vol. 17(1), pages 27-55, September.
    18. John Y. Campbell, 1986. "Bond and Stock Returns in a Simple Exchange Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 785-803.
    19. Dennis Sibanda & Job Dubihlela, 2013. "Factors That Impede Viable Bond Market Development In One Hyperinflationary Economy," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 4(1), pages 107-118.
    20. Matteo Bonato & Luca Taschini, 2016. "Comovement and the financialization of commodities," GRI Working Papers 215, Grantham Research Institute on Climate Change and the Environment.
    21. Mark C. Freeman & Ben Groom, 2015. "Positively Gamma Discounting: Combining the Opinions of Experts on the Social Discount Rate," Economic Journal, Royal Economic Society, vol. 125(585), pages 1015-1024, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1789. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.