international fixed income n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
International Fixed Income PowerPoint Presentation
Download Presentation
International Fixed Income

Loading in 2 Seconds...

play fullscreen
1 / 17
jenis

International Fixed Income - PowerPoint PPT Presentation

135 Views
Download Presentation
International Fixed Income
An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. International Fixed Income Topic IIIB: Currency Risk and Bond Returns

  2. Outline • How Well Do U.S. Interest Rate Factors Explain Foreign Term Structures? • Stylized Facts About Government Bond Returns. • The Volatility of Government Bond Returns - A Data Analysis

  3. I. Explaining Foreign Term Structure Movements Using US Rates • How much does the US term structure explain movements in the term structure across countries? • Case study: • G7 countries (US,UK,JPN,CAN,GER,ITA,FR) • 1996-1999 • Weekly movements in zeroes of 1yr-30yr maturities

  4. Correlations Between Principal Components US UK JPN CAN FRA GER ITA US UK JPN CAN FRA GER ITA

  5. Average R-Squared of Foreign Term Structure on US Interest Rate Factors

  6. Average R-Squared of Foreign Term Structure on US Interest Rate Factors & Exchange Rate

  7. II. Stylized Facts About Government Bond Returns • Look at $-adjusted foreign government bond returns (i.e., portfolio of bonds across maturities) • JP Morgan Indices for G7 countries • Means, Volatilities and Correlations

  8. Recall Rates of Return on Bonds Consider a a foreign government bond. What is it’s US $ rate of return? Taking logs of the above and rearranging gives us This is approximately equal to: [yield] - [dur x (Dr)] - %DS(Fn/$)

  9. Mean $-adjusted Annualized Return

  10. Volatility of $-adjusted Annualized Return

  11. Correlations Between Returns US UK JPN CAN FRA GER ITA US UK JPN CAN FRA GER ITA

  12. III. What Explains Government Bond Returns? • Relation between $-adjusted government bond returns and US interest rate factors • Relation between $-adjusted government bond returns and theoretical factors: • Foreign principal component • Foreign principal components (all 3) • Foreign principal components & exchange rate

  13. % of $-adjusted Returns Explained by Own 1st Principal Component Estimated coefficient =-5 to -6

  14. % of $-adjusted Returns Explained by Own 3 Principal Components

  15. % of $-adjusted Returns Explained by Own 1st Principal Component & Exchange Rate Estimated coefficient =-5 to -6 on 1st comp & -1 on XR

  16. % of $-adjusted Returns Explained by Own 3 Principal Components & Exchange Rate Estimated coefficient =-5 to -6

  17. Recall: % of Volatility of $-adjusted Foreign Bond Due to Currency Risk