Expected returns in Treasury Bonds

Cieslak, A. and Povala, Pavol (2015) Expected returns in Treasury Bonds. Review of Financial Studies 28 (10), pp. 2859-2901. ISSN 0893-9454.

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Official URL: https://doi.org/10.1093/rfs/hhv032

Abstract

We study risk premium in U.S. Treasury bonds. We decompose Treasury yields into inflation expectations and maturity-specific interest-rate cycles, which we define as variation in yields orthogonal to expected inflation. The short-maturity cycle captures the real short-rate dynamics. Jointly with expected inflation, it comprises the expectations hypothesis (EH) term in the yield curve. Controlling for the EH term, we extract a measure of risk-premium variation from yields. The risk-premium factor forecasts excess bond returns in and out of sample and subsumes the common bond return predictor obtained as a linear combination of forward rates.

Metadata

Item Type:	Article
School:	Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User:	Administrator
Date Deposited:	05 Feb 2020 18:39
Last Modified:	05 Feb 2020 18:39
URI:	http://eprints.bbk.ac.uk/id/eprint/30835

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