Working Paper

Mildly Explosive Dynamics in U.S. Fixed Income Markets


Abstract: We use a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior in the weekly time series of seven U.S. fixed income yield spreads between September 2002 and January 2015. We find statistically significant evidence of such behavior in six of these spreads. Mild explosivity migrates from short-term funding markets to more volatile medium- and long-term markets during the Great Financial Crisis. For some markets, we statistically validate the conjecture, originally suggested by Gorton (2009a,b), that the financial panic of 2007 initially migrated from segments of the ABX market to other U.S. fixed income markets.

Keywords: fixed income markets; yield spreads; mildly explosive behavior; Finance; investment analysis;

JEL Classification: G01; C58; C44; G12;

https://doi.org/10.24149/gwp324r1

Access Documents

File(s): File format is application/pdf https://www.dallasfed.org/-/media/documents/institute/wpapers/2017/0324r1.pdf
Description: Revised paper

File(s): File format is application/pdf https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0324.pdf
Description: Original paper

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2019-02-04

Number: 324

Pages: 32 pages