The application of sovereign bond spreads: The case of selected EU countries and the USA
| Authors | |
|---|---|
| Year of publication | 2015 |
| Type | Article in Periodical |
| Magazine / Source | Acta academica karviniensia |
| MU Faculty or unit | |
| Citation | |
| Field | Management and administrative |
| Keywords | GDP prediction; slope; spread; yield curve |
| Description | The yield curve – specifically the spread between long term and short term interest rates is a valuable forecasting tool. It is simple to u se and significantly outperform other financial and macroeconomic indicators in predicting recessions two to six quarters ahead. The steepness of the yield curve should be an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve as well as to slow down real growth the near term. This paper aims to analyze the dependence between slope of the yield cu rve and an economic activity of selected EU countries and the USA between the years 2000 and 2014. The slope of the yield curve can be measured as the yield spread between sovereign 10 - year bonds and sovereign 3 - month bonds. The natural and probably the most popular measu re of economic growth is GDP growth, taken quarterly. The results showed that the best predictive lag s are lag o f four and five quarters. The results presented also confirm that 10 - year and 3 - month yield spread has significant predictive power to real GDP growth after financial crisis. These findings can be beneficial for investors and provide further evidence of th e potential usefulness of the yield curve spreads as indicators of the future economic activity. |
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