Information in the term structure of yield curve volatility

• Autores: Anna Cieslak, Pavol Povala
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 71, Nº 3, 2016, págs. 1393-1436
• Idioma: inglés
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• Resumen

  • Using a novel no-arbitrage model and extensive second-moment data, we decompose conditional volatility of U.S. Treasury yields into volatilities of short-rate expectations and term premia. Short-rate expectations become more volatile than premia before recessions and during asset market distress. Correlation between shocks to premia and shocks to short-rate expectations is close to zero on average and varies with the monetary policy stance. While Treasuries are nearly unexposed to variance shocks, investors pay a premium for hedging variance risk with derivatives. We illustrate the dynamics of the yield volatility components during and after the financial crisis.