Fixed income strategies based on the prediction of parameters in the NS model for the Spanish public debt market

Using different econometric models, Diebold and Li (J Econom 130:337-364, 2006) addressed the practical problem of forecasting the yield curve by predicting the factors level, slope and curvature in the Nelson-Siegel framework. This paper has two main aims: on the one hand, to investigate the predictive possibilities of the yield curve for the Spanish public debt market, using the methodology proposed by Diebold and Li (J Econom 130:337-364, 2006); and on the other hand, to study the capability of generating profits by transforming these yield curve predictions into technical trading strategies. The Sharpe ratios of our strategies outperform the hedging strategy benchmarks for long (1 year) horizons in our prediction period (2000 - 2010) and also for the current crisis period (2008 - 2010).Nevertheless, these strategies do not outperform their benchmarks for short (1 month) horizons. The introduction of nonparametric models improves the profitability of the strategies in terms of the Sharpe ratio, especially in the 1-year-ahead predictions. This finding is in line with Diebold and Li (J Econom 130:337-364, 2006), whose forecasts for long horizons are much more accurate than those of several standard benchmark models

U.S. monetary policy and herding: Evidence from commodity markets

This paper investigates the presence of herding behavior across a spectrum of commodities (i.e., agricultural, energy, precious metals, and metals) futures prices obtained from Datastream. The main novelty of this study is, for the first time in the literature, the explicit investigation of the role of deviations of U.S. monetary policy decisions from a standard Taylor-type monetary rule, in driving herding behavior with respect to commodity futures prices, spanning the period 1990-2017. The results document that the commodity markets are characterized by herding, while such herding behavior is not only driven by U.S. monetary policy decisions, but also such decisions exert asymmetric effects this behavior. An additional novelty of the results is that they document that herding is stronger in discretionary monetary policy regimes.N/

Convergence and Anchoring of Yield Curves in the Euro Area

We study the convergence of European bond markets and the anchoring of inflation expectations in the euro area from 1993 to 2008, using high-frequency bond yield data for France, Germany, Italy, and Spain; some smaller euro-area countries; and a control group comprising the United Kingdom, Denmark, and Sweden. We find that Economic and Monetary Union (EMU) led to substantial convergence in euro-area sovereign bond markets in terms of interest rate levels, unconditional daily fluctuations, and conditional responses to major macroeconomic announcements. Our findings also suggest a substantial increase in the anchoring of long-term inflation expectations since EMU, particularly for Italy and Spain. Finally, we present evidence that the elimination of exchange rate risk and the adoption of a common monetary policy were the primary drivers of bond market convergence in the euro area, as opposed to fiscal policy and the loose exchange rate peg of the 1990s. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Inflation targeting and term premia estimates for Latin America

Inflation targeting has been widely adopted in Latin America. In this paper, we show evidence consistent with major beneficial effects from so doing, with falling term premia and anchored policy rate expectations. To do this we construct term premia estimates using the method suggested by Adrian et al. (2013) for selected inflation targeting Latin American economies. They use synthetic prices constructed from estimated yield curves to derive holding-period excess returns and condition on the principal components of the yields. This approach is extremely easy to implement and fast to calculate. We detect a small drop in interest rate expectations since the global financial crisis but longer term rates seem remarkably well anchored. There is also relatively low correlation between our estimated Latin American and US term premia