Czech Government Bond yields under FX pressure

Simerský, Mojmír (2018): Czech Government Bond yields under FX pressure.

Abstract

This paper presents some results of the yield curve (YC) estimation method proposed in ([Sim]). We focus on the Czech Government Bond market in the period 2014-2017, when the Czech National Bank (CNB) weakened the CZK exchange rate by long-term currency interventions.

The input data is the Czech daily fixing published online by MTS ([Mts1]). These quotations suffer, however, from a large bid-ask or YTM spreads, a fact that reflects itself in the YC estimation errors. Some 700 YCs were computed and histograms of yield estimation errors and of YC smoothness are given. Of interest is the comparison of the Czech benchmark zero-coupon yields at 1, 5, and 10 years with the ECB AAA yields ([Ecb]).

Selected YCs in 2017 show that the outstanding depression of the short-term bond yields occurred in mid-January, some two months before the CNB announced the end of interventions (April 6). The termination itself influenced the Czech bond yields only moderately.

• Item Type: MPRA Paper
• Language: English
• Keywords: yield curve estimation, zero-coupon yields, Czech bond market, Czech National Bank, ECB
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

References

[Cnb]http://www.cnb.cz/en/financial_markets/money_market/pribor/index.html

[Ecb]https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/euro_area_yield_curves

[Mts1]https://www.mtsdata.com/content/data/public/cze/fixing/index.php

[Mts2]https://www.mtsdata.com/content/data/public/cze/anagraph/member.php

[Sim] Simersky, M., Zero-coupon yields estimated by zero-degree splines, www.zyc.cz, https://mpra.ub.uni-muenchen.de/id/eprint/86268