Laura Coroneo, Domenico Giannone, and Michele Modugno
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, forecastingFull paper (647 KB PDF)