RT Journal Article
SR Electronic
T1 Predictability in the Shape of the Term Structure of Interest Rates
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 40
OP 53
DO 10.3905/jfi.2005.523089
VO 15
IS 1
A1 Frank J Fabozzi
A1 Lionel Martellini
A1 Philippe Priaulet
YR 2005
UL https://pm-research.com/content/15/1/40.abstract
AB Evidence of predictability in the time-varying shape of the U.S. term structure of interest rates is demonstrated using a robust recursive modeling approach based on a Bayesian mixture of multifactor models. Variables such as default spread, equity volatility, and short-term and forward rates can be used to predict changes in the slope of the yield curve and (to a lesser extent) changes in its curvature. Systematic trading strategies based on butterfly swaps reveal that this evidence of predictability in the shape of the yield curve is both statistically and economically significant.