The contribution of US bond demand to the US bond yield conundrum of 2004–2007: An empirical investigation

Goda, Thomas, Lysandrou, Photis and Stewart, Chris (2013) The contribution of US bond demand to the US bond yield conundrum of 2004–2007: An empirical investigation. Journal of International Financial Markets Institutions & Money, 27, pp. 113-136. ISSN (print) 1042-4431

Full text available as:
[img]
Preview
Text
US_Bond_Demand_and_the_US_Bond_Yield_Conundrum_JIFMIM_October_2013_repository.pdf - Accepted Version

Download (1MB) | Preview

Abstract

Although the federal funds rate started rising from mid-2004 US long term rates continued to fall. A likely contributory factor to this ‘conundrum’ was the contemporaneous increase in US bond demand. Using ARDL based models, which accommodate structural breaks, this paper estimates the impact of foreign and domestic demand on AAA rated US bond yields in the ‘conundrum’ period. This impact is shown to have been everywhere significantly negative. The fact that our model fully explains the ‘bond yield conundrum’ gives support to the hypothesis that the US CDO market was rapidly expanded before 2007 chiefly to absorb the overspill of global demand for safe assets. Moreover, our models demonstrate that there are strong linkages between the 10-year Treasury yield and the long term yields of AAA rated non-Treasury bonds.

Item Type: Article
Uncontrolled Keywords: ARDL modeling, bond yield conundrum, investor demand, subprime crisis, structural breaks
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics, History and Politics (from November 2012)
Depositing User: Chris Stewart
Date Deposited: 25 Nov 2014 11:58
Last Modified: 29 Sep 2016 09:46
URI: http://eprints.kingston.ac.uk/id/eprint/26616

Actions (Repository Editors)

Item Control Page Item Control Page