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| Author: | Choudhry, M. |
| Title: | The Impact of Demand and Liquidity on the Information Content and Predictive Power of the Government Bond Yield Curve: An Illustration from the UK Gilt Market |
| Journal: | Journal of Asset Management
2003 : AUG, VOL. 4:2, p. 119-130 |
| Index terms: | CAPITAL MARKETS GOVERNMENT BONDS UNITED KINGDOM FORWARD INTEREST RATES SWAPS MARKET |
| Language: | eng |
| Abstract: | Fund managers in the capital markets frequently use the government bond yield curve as part of investment analysis. The predictive power of the spot curve is illustrated here using examples from the past, in conjunction with the money market swap yield curve. Low levels of liquidity resulting from an excess of demand over supply in government bonds may reduce the predictive power of the term structure, owing to an artificially generated shape of the yield curve. The example used here to illustrate this suggests that, in these cases, the swap yield curve could be used to determine market expectations of future interest rates. It is concluded that the swap curve is currently the only viable alternative instrument in the sterling debt markets, but its use is not necessarily entirely satisfactory. |
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