Unspanned macroeconomic factors in the yield curve

Coroneo, Laura; Giannone, Domenico; Modugno, Michele

Working Paper

Unspanned macroeconomic factors in the yield curve

Abstract: In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.

Keywords: Yield curve; government bonds; factor models; forecasting;

JEL Classification: C33; C53; E43; E44; G12;