The Research On Effects Of Macroeconomic On Interbank Bonds’ Interest Rate Term Structure In China

The research of interest rates, is one of the most important subjects in thefield of modern macroeconomics and finance. Interest rates can be regardedas the price of financial assets, and it is also an important macro-controlmethod. Term structure of interest rates is the relationship between the yieldof different bonds and their maturities. Nowadays, the research of the termstructure focuses on these three aspects: how does the overall level of interestrates rise or fall, how does the difference between long-term and short-terminterest rates changes, and how does the curvature of the term structurechange.At present, China’s bond market includes two markets: the interbankmarket and exchange market, and the interbank market is the dominant.Government bond is the bond issued by the Ministry of Finance, whoseinterest rate is often regarded as the benchmark rate. In the real world, bondmarket is closely related to the macro-economy, for example, the increase ofinflation rate will lead to higher interest rate, and the loose monetary policywill always cause the increase long-term and short-term interest spread.Therefore, I choose this subject to look for the quantitative relationshipbetween them.The sample includes all the zero and fixed rate government bond in theinterbank market, and its interval is from January2010to December2013.Firstly, I fit the term structure of interest rates each month using Nelson-Siegel model, and extract three factors, which represent the curve’s level,steepness and curvature. Secondly, I use the Principal Component Analysismethod to extract three principal factors which represent economic growth, inflation and monetary policy separately. Finally, I use VAR model toanalyze the relationship between the above six variables.The research shows that, there does exist a certain relationship betweenthe term structure and macroeconomic variables. The term structure willresponse to the change of macroeconomic variables in the same month, andwill last2to4months usually. Besides, the response is often excessive, butwill moderate itself in the next month. Actually, the relationship between theterm structure and the macroeconomic variables is not very close, especiallyfor the curvature interpretation.