A Theoretical and Empirical Research on Factors Affecting the Price of Government Bond
|Keywords||Government bond yield Panel data regression Economic data Size of economy Foreign exchange|
From2008financial tsunami,2011European debt crisis, to current era of Post-QE, we all can see that government bond plays a very important role in today’s financial market, and global economy. It is not only a reflection of a country’s macro-economic conditions, but also reflects a country’s fiscal situation. Moreover, bond prices (Yield to Maturity, YTM) is the basis for the evaluation of financial instruments. In addition, after2008financial tsunami, a lot of countries have lowered their interest rate to guide the longer term treasury yield falling down, in turn, indirectly stimulated the consumption of private sector, and reduced the borrowing cost of government and private sector. As a result, the global economy has gradually recovered. Therefore, we need pay more attention on government bond and government bond market.This article is to investigate the causality relationship between the macroeconomic, market or environment variables, and government bond yields. Through the time series data and empirical analysis, we will be able to identify the factors of fluctuations of bond yields. Furthermore, this article is intend to inspect the relationship between foreign exchange rate and government bond yield, giving the different sizes of economy under the floating exchange rate system and managed floating rate system. In this study, ten-year government bond yield (BYR) has been chosen as explained variable. And, exchange rate (EXR), stock price index (Stock), central bank benchmark interest rate (CBR), CME crude oil futures price (OP), GDP growth rate (gGDP, year-on-year), CPI growth rate (gCPI, year-on-year) are explanatory variable. This study makes use of monthly data taken from January2001to June2012, ended up with samples amounting to1380.This paper uses descriptive statistics, stationary test, Panel data model, fixed effects test, and random effects test. And, the empirical results reveal that the exchange rate would positively impact on government bond yield for the big open economy, while the influence should be reverse for the small open economy. Regardless of2008financial tsunami,2011European sovereign-debt crisis, and sizes of economy, the central bank benchmark interest rate and CPI growth rate would positively impact on government bond yield. On the other hand, the CME crude oil futures price would negatively impact on government bond yield.The innovation of this paper is that when we analyze the relationship between economic indicators, such as stock index and foreign exchange rate, and government bond price (yield), we did not consider the size of an economy (country) before. For example, exchange rate. Intuitively, we think government bond yield and exchange rate are in positive relationship. However, after we took the size of an economy (country) into account, and use panel date regression model. We found that for a small economy (country), they are in negative relationship.