The Dynamic Impact Effect Of Interest Rate And Exchange Rate On Treasury Yields

National debt has several advantages: safe and reliable, relatively stable income, strongliquidity and exemption from individual income tax. At the same time, national credit guaranteenational debt which makes the research on national debt is different from researches on otherordinary securities bonds, has the unusual significance. Interest rate and exchange rate have thedynamic impact effect on the different period of bond yields. This article compares the resultsabove. Interest rate and exchange rate is the price tool of monetary policy tools. Changes ofinterest rate and exchange rate often contains some information of market. These messages makethe treasury yields of different period wave. The treasury yield curve changes too. Treasury yieldsreflects some information of monetary policy in advance.This paper adopts the structural vector auto-regression model (SVAR model) combined withthe impulse response function and variance decomposition, to do empirical research on thedynamic impact effect of interest rate and exchange rate on treasury yields.Then this papercompares the similarities and differences among the empirical results under the condition ofdifferent term of bonds. The main conclusions are as follows:First, the impulse response trajectory of the short-term bond yields to the shock of interestrate is very different from the others. It is a process of gradual decline. The maximum emerges inthe first phase. The impulse response trajectory of the medium and long term yields to the shockof interest rates is a convex curve which has a peak. Second, the peak and the cumulative responseof the impulse response trajectory of the medium-term bond yields to the shock of interest rate arehigher than the long-term bond yields’. This shows that the shock of interest rate has the fastestand most distinct impact on short-term bond yields. And the cumulative effect reaches almost2times. The positive influence caused by interest rates is more rapid and more intense and thecumulative effect is greater if the term of the bonds yields is shorter.Their shape and trend of the impulse response trajectory with the impact of exchange rate arebasically the same which are convex curves under horizontal axis. But their peak value andcumulative effect is different. The longer the period, the lower the peak, the smaller the cumulative effect. It shows that the negative influence caused by exchange rates is more intenseand the cumulative effect is greater if the term of the bonds yields is shorter.First, the variance decomposition diagram of short-term bonds yield is very different from theothers. The contribution rate of interest rates gradually decline and reaches stable value in the fifthperiod. The contribution rate of exchange rate rises gradually and reaches stable value in theseventh period. The above two processes are opposite of variance decomposition figures ofmedium-term and long-term bond yields. Second, comparing the variance decompositiondiagrams we find that contribution rate of the interest rate and exchange rate for bond yields islower if the term of bond yields is longer. This shows that interest rate and exchange rate for bondyields is more important if the term of the bonds yields is shorter.