A Study of the Relationship among the Yields of US Government Bond、Investment Grade Bond and High Yield Bond
Date Issued
2010
Date
2010
Author(s)
Chen, Hsiang-Chun
Abstract
The study adopted three bond benchmarks which have daily prices(called “Yield“；Yield to Maturity) and always observed by bond investors. The three Yields of bond benchmarks are Yields of US 10yrs Government Bond（called as “US Government Bond”）、Merrill Lynch Global Broad Market Index（called as “Investment Grade Bond”）and Merrill Lynch Global High Yield Index（called as “High Yield Bond”）We studied the relationship of YTM among different credit bonds (YTM) in the observation period.
For the study structure，we adopted ADF Test and PP Test to proceed the unit root test for above three YTMs of bond benchmarks，built up VAR Model，proceeded cointegration test，then built up VECM Model by error correction estimate to find out the long-term Equilibrium and the error correction in short term.
The conclusions are as below:
(1) For long-term cointegration test，it is positive relationship between the Yields of US Government Bond and Investment Grade Bond，but negative relationship between the Yields of US Government Bond and High Yield Bond.
(2) When they do not stand the Equilibrium，the Yield of US Government Bond willrise，but the Yields of Investment Grade Bond and High Yield Bond will drop，until the
Yields return to the Equilibrium.
(3) the Yields of US Government Bond 、Investment Grade Bond and High Yield Bond keep consistency.
(4) the relationship of Yields is apparently positive between US Government Bond and Investment Grade Bond which is one-month lagged.
(5) the relationship of Yields is not apparently between US Government Bond and High Yield Bond.
Subjects
Interest rate
bond
bond performance
Type
thesis
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