The Behaviour of Chinese Government Bond Yield Curve before and during the COVID-19 Pandemic

Ganchev, Alexander (2023): The Behaviour of Chinese Government Bond Yield Curve before and during the COVID-19 Pandemic. Published in: 13th International Scientific Conference „Business and Management 2023“, (May 2023): pp. 324-334.

Abstract

The aim of the study is to investigate the behaviour of the Chinese government bond yield curve before and during the COVID-19 pandemic. Its methodology comprises the techniques of time series analysis, correlation analysis and dimensionality reduction. The main empirical results show that in the pandemic period, the behaviour of the Chinese government bond yield curve differs significantly from that before the outbreak of COVID-19. This is evidenced by the weaker correlations among the analysed yields, the presence of anomalies, heterogeneous behaviour and probable arbitrage opportunities at the long-term end of the studied yield curve, as well as the significant changes in the main factors of its dynamics. The research also reveals that prior to the COVID-19 pandemic, portfolios composed of Chinese government bonds could be well protected against interest rate risk even by using traditional parallel shift immunization techniques. However, after the outbreak of the COVID-19 pandemic the use of such techniques would be relatively effective for portfolios of Chinese government bonds with maturities between 1 and 5 years, while portfolios that include Chinese government bonds with maturities greater than 7 years should be either hedged against all the three factors of the yield curve dynamics or be used only for arbitrage strategies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Chinese government bond market, government bonds, yield curve, COVID-19
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt

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