A Study On The Effect Of Macro Economy No The Bond Market Yield Curve

As an important part of a country’s financial system, bond market plays a quite special role to the economy. According to the statistics, during2002-2012, the average annual growth rate of the bond market has reached30%,which is much higher than the developed countries and the other BRICs. Along with the rapid expansion of China’s bond market, investors and academics has paid attention to the research on the yield of the bond market. While the bond market in our country is deepening and maturing during this period, our macro economy has experienced a relatively complete economic cycle. The analysis of the bond market yields is traditionally based on the analysis of macroeconomic fundamentals. In particular, by the hit of financial crisis, our economy experienced a recession and recovery in2008-2012. As a result, both bond investors and research scholars, began to focus on economic growth index. Practice experience from the market also told us that bond yields does exist a certain correlation to the macro economic factors. So, if we can determine the change of bond market returns from macroeconomic information, it will has a research and practice significance.This paper, starting from the analysis of relevant literature and the development history of China’s bond market, has made an empirical analysis of the large amounts of data. Meanwhile, this paper summarized the the results of the empirical results, making several investment advice to bond investors and implications for policy makers.The first chapter is introduction. This chapter mainly introduces the background and meaning of this article. Then, this chapter of this article introduces the main research content and method, and the paper along with the structure of it. Finally, it sums the innovation and shortage in this paper.The second chapter is the literature review. This paper illustrates the influence of macro economy on the bond market yields from aspects of theory and practice. At the same time, it summarizes the macroeconomic factors that have an impact on bond market yields and the reasoning methods.The third chapter is about our bond market development history and the present situations. Starting from the development of bond market, this chapter describes the present situation of it quantitatively. Finally, on this basis, the traits of inter-bank bond market,which plays a dominant role in China’s bond market, are summarized.The fourth chapter is about theoretical basis and the models used. First this chapter embarks from the economic theory, and divides the macro economy information into three aspects, which is the macro economy, policy and liquidity. After that, this chapter elaborates the impact of the three macro information on the term structure of interest rate in bond market and the conduction mechanism. Then, this chapter introduces the related theory knowledge about principal component analysis (PCA) and vector autoregressive model (VAR).The fifth chapter is the empirical analysis. This chapter embarks from the principal component analysis (pca) to get three factors from the treasury market yield curve, and studies the main characteristics of the inter-bank bond yield curve and its economic significance. At the same time, combined with practice, by statistical analysis and empirical research, this paper tries to find the actual observable variables in bond market to substitute the level factor, slope factor and curvature factor. Then, based on principal component analysis, it shows that macro economy, policy and liquidity information does have linkage effect on the level factor, slope factor and curvature factor by using the method of statistical analysis. Finally, the three factors of the inter-bank bond market yield curve,combined with the macro economy, policy and liquidity information, this chapter uses vector autoregressive model (VAR) analysis to illustrate the influence of macroeconomic factors on bond yields. At the same time, the application of the impulse analysis and variance analysis shows the relative direction of the influence of the yield curve for each indicator.Chapter six is about conclusions and related investment advices. According to the results of the first two chapters of theoretical and empirical analysis, this chapter tells the conclusion for this article about the influence of macroeconomic factors on the yield curve. Then, in view of the conclusion, this chapter puts forward some suggestions and enlightenment to bond investors and suggestions on the development of bond market to policy authorities.Overall, this article has some innovations from the following aspects:First of all, the traditional bond research generally summarizes the macroeconomic factors for PMI, industrial added value, CPI, money supply, the benchmark interest rate, etc., while ignoring the influence of liquidity on the yield curve. From practical conditions, this paper will stand on the angle of the investors, and analyse the macroeconomic factors that affect the bond market from macro economy, the policy and the liquidity level.Secondly, with principal component analysis (pca) on interbank bond yields, this chapter gives the three factors (level factor, slope factor and curvature factor) for further explanation and illustration. According to the experience of market practitioners, combined with the results of regression, it finds that the level of5y bond yields,10y-1y yield spreads and30y-10y spreads, can be used to replace these three factors respectively, which simplifies the study of Treasury bonds yield curve and has a practical significance to the investors.Thirdly, this article selects the CPI, m2and shibor (for seven days) to represent the macroeconomic fundamentals, the policy and the fund aspects. Combined with the level factor, slope factor and curvature factor from the principal component analysis, we build three independent VAR models. After that, this chapter analyzes the impulse response and variance decomposition results. But, we find a conflict of the impact on m2to the yield curve from empirical results and the way we usually understood.Finally, this paper combines the empirical results with the practices, and provides suggestions for bond investments from the Angle of investors. At the same time, from the perspective of policy makers, it shows the way to develop our bond markets in the future and has put forward relevant policy suggestions.