Sovereign Bond Spreads as a Predictors of Gross Domestic Product Growth in North America

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HVOZDENSKÁ Jana KAJUROVÁ Veronika

Rok publikování 2015
Druh Článek ve sborníku
Konference European Financial Systems 2015. Proceedings of the 12th International Scientific Conference
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Citace
Obor Řízení, správa a administrativa
Klíčová slova GDP prediction; yield curve; slope; spread
Přiložené soubory
Popis The yield curve – specifically the spread between long term and short term interest rates is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead. The steepness of the yield curve should be an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve as well as to slow real growth the near term. This paper aims to analyze the dependence between slope of the yield curve and an economic activity of countries of North America (Canada, Mexico, the United States of America) between the years 2000 and 2014. The slope of the yield curve can be measured as the yield spread between sovereign 10-year bonds and sovereign 3-month bonds. The natural and probably the most popular measure of economic growth is by GDP growth, taken quarterly. The results showed that the best predictive lags differ in each country and each time span we chose. The most common lags of spreads are lag 6 and 5 quarters. The results presented confirm that 10-year and 3-month yield spread has significant predictive power for real GDP growth. These findings can be beneficial for investors and provide further evidence of the potential usefulness of the yield curve spreads as indicators of the future economic activity.
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