Monetary Policy Uncertainty and Bond Risk Premium
Fuwei Jiang (Central University of Finance and Economics) and
Guoshi Tong (Renmin University)
October 1, 2016
We show that uncertainty of monetary policy (MPU) commands a risk premium in the US Treasury bond market. Using the news based MPU measure in Baker, Bloom, and Davis (2016) to capture monetary policy uncertainty, we find that MPU forecasts significantly and positively future monthly Treasury bond excess returns. This forecastability remains significant controlling for standard bond risk premium predictors based on yield curve and macroeconomic fundamentals. The predictive power of MPU is not driven by uncertainty of economic growth, inflation and general economic condition, and is confirmed in out-of-sample tests.
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Monthly Archives: June 2017
10-Year Treasury Yield Drops Despite Fed Rate Hike
The Federal Reserve on Wednesday hiked interest rates again, asserting that moderate economic growth will continue for the foreseeable future. But confidence appeared to be in short supply via the benchmark 10-year Treasury yield, which slumped amid rising demand for this safe-haven asset.
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Is A Tightening Yield Spread Still A Warning Sign For The Economy?
The Federal Reserve is expected to raise interest rates today – at a time when the Treasury yield spread has become relatively compressed. That’s a warning sign, according to the historical record. The question is whether the shelf life for this analysis has expired?
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Is Inflation Strong Enough To Warrant Another Rate Hike?
The Federal Reserve is conducting a grand experiment in monetary policy that’s set to continue in tomorrow’s policy statement, which is expected to roll out another hike in interest rates. The experiment is tightening policy when inflation and employment growth are still low and perhaps heading lower.
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Most Markets Declined Last Week
The first full week of trading in June took a bite out of most markets. Only US real estate investment trusts (REITs) and broadly defined commodities bucked the downward trend for the major asset classes last week, based on a set of representative exchange-traded products.
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Book Bits | 10 June 2017
By Gary Smith
Review via NY Times
“Instead of trying to predict short-term zigs and zags in stock prices, value investors evaluate individual stocks and the market as a whole by looking for good companies that have low stock prices relative to their dividends, earnings and assets,” he writes….
Throughout the book, Mr. Smith provides financial formulas to help you identify value stocks, and his writing is clear and often clever. For example:
* “Bargains are not going to be found when investors are optimistic, but when they are pessimistic.”
* “Value investors do not buy metals — no matter how precious — because metals do not generate cash.”
* “It’s tempting to confuse a great company with a great stock.”
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Another Forecasting Lesson After The UK’s Surprising Election
UK Prime Minister Theresa May’s gamble to call an early general election has backfired, dealing Britain an unexpected outcome that’s dealt another blow to the so-called experts who anticipated that the Conservatives would gain seats in Parliament. Instead, the electorate confounded the polls and forecasting models and delivered a major setback to May’s government. Once again, there are lessons to be learned about the hazards of forecasting, although assuming that all efforts at diving the future are wrong isn’t one of them.
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Is Bitcoin A New Asset Class?
The astonishing bull market (bubble?) in Bitcoin has drawn attention to the cryptocurrency from all corners. One of the questions that’s reasonating: Should Bitcoin be treated as an asset class, on par with stocks, bonds, real estate and commodities?
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10-Year Treasury Yield Sinks As Futures Price In A Rate Hike
Fed funds futures are pricing in a near certainty of a rate hike at next week’s FOMC meeting, although you wouldn’t know it by looking at the 10-year Treasury yield, which has been sinking like a stone in recent weeks.
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US Q2 GDP Estimates Continue To Project Stronger Growth
US economic activity for the second quarter is on track to accelerate, according to several estimates. The official GDP report for Q2 is due in late-July, which means that there’s still a fair amount of uncertainty about the outlook for the final set of numbers for the current quarter. For the moment, however, most estimates continue to project a solid rebound following a sluggish 1.2% increase in Q1.
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