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The green bond market has significantly improved in recent years thanks to the development of financial instruments and the rising climate change concerns. Given this backdrop, this paper investigates the effects of returns in different financial markets, i.e. the United States Treasury Bonds, the Standard & Poor's stock market, the United States Dollar, Gold, Crude Oil, and Bitcoin on the Green Bond returns (the Standard & Poor's Green Bond Index) from September 17, 2014, to September 1, 2022. The results from the robust linear and machine learning estimators indicate that the returns of the United States Treasury Bonds and the United States Dollar are negatively related to the Green Bond returns. Meanwhile, Gold returns positively affect Green Bond returns. The quantile regression estimations of Machado–Santos Silva also show that these findings are valid in different quantiles. The paper also discusses policy implications related to climate change and the development of financial instruments to promote green investments. [ABSTRACT FROM AUTHOR]

Economists both failed to predict the global financial crisis and underestimated its consequences for the broader economy. Focusing on the second of these failures, this paper makes two contributions. First, I review research since the crisis on the role of credit factors in the decisions of households, firms, and financial intermediaries and in macroeconomic modeling. This research provides broad support for the view that credit market developments deserve greater attention from macroeconomists, not only for analyzing the economic effects of financial crises but in the study of ordinary business cycles as well. Second, I provide new evidence on the channels by which the recent financial crisis depressed economic activity in the United States. Although the deterioration of household balance sheets and the associated deleveraging likely exacerbated the initial economic downturn and the slowness of the recovery, I find that the unusual severity of the Great Recession was due primarily to the panic in funding and securitization markets, which disrupted the supply of credit. This finding helps to justify the government's extraordinary efforts to stem the panic in order to avoid greater damage to the real economy. [ABSTRACT FROM AUTHOR]

The announcement made by the Fed Chairman, Ben Bernanke, on May 22, 2013 regarding the reduction of the quantitative easing programme that took by storm the financial markets determined the significant volatility increase of the US markets and it was not limited to it. The financial markets in the emerging countries that benefited from an increase in their financial flows during the quantitative easing programme were the most affected by this announcement through the volatility increase, depreciation of exchange rate and massive capital outflows. The current paper tackles volatility and volatility transmission from the US market determined by the change of monetary policy to the Eastern European markets. To study the volatility of each stock and bond market of the countries in Eastern Europe, we used univariate heteroscedastic models while for the analysis of volatility transmission from the US market to the Eastern European markets we used the multivariate heteroscedastic models. The results obtained confirm the volatility transmission both on the stock markets, with the exception of Latvia and Lithuania, and on the bond markets in Eastern Europe. [ABSTRACT FROM AUTHOR]

In recent years, an increasing interest has been shown in pure discount bonds. A number of papers have looked at corporate capital structure in an option pricing framework, assuming the issuance of pure discount bonds by corporations. Merton has presented a theoretical discussion of the impact of default risk upon pure discount bonds. Racette and Lewellen have argued that long-term pure discount bond issues could present special tax advantages to corporations. Fisher and Weil have suggested that long-term pure discount bonds would be very attractive to holders of bond portfolios in order to immunize these portfolios against changes in interest rates. A similar position is taken by Caks. In spite of the claimed advantages of pure discount bonds from the viewpoint of both potential bondholders and stockholders, in the United States long-term pure discount bonds are not issued by corporations or governments. This paper will provide an explanation of this non-issuance by showing that the tax treatment of original issue pure discount bonds is highly disadvantageous to potential bondholders and firms. U.S. tax law requires the original purchaser of a long-term pure discount bond to amortize as regular income over the bond's life the difference between the purchase price and the face value (to be received at maturity). One purpose of this paper is to show that this tax law implies that, in equilibrium, pure discount bond issue prices would have to be negative for a wide spectrum of tax rates. Corporations would never issue bonds at negative prices, since the corporation would never receive any cash inflows. Secondly, it will be shown that pure discount bonds initially issued at positive prices can subsequently have negative prices if interest rates were to rise. Consequently, such bonds would be very risky to potential purchasers. [ABSTRACT FROM AUTHOR]

This paper explores the history of inflation-indexed bond markets in the United States and the United Kingdom. It documents a massive decline in long-term real interest rates from the 1990s until 2008, followed by a sudden spike during the financial crisis of 2008. Breakeven inflation rates, calculated from inflation-indexed and nominal government bond yields, were stable from 2003 until the fall of 2008, when they showed dramatic declines. The paper asks to what extent short-term real interest rates, bond risks, and liquidity explain the trends before 2008 and the unusual developments that followed. Low yields and high short-term volatility of returns do not invalidate the basic case for inflation-indexed bonds, which is that they provide a safe asset for long-term investors. Governments should expect inflation-indexed bonds to be a relatively cheap form of debt financing in the future, even though they have offered high returns over the past decade. [ABSTRACT FROM AUTHOR]

This article focuses on issues relating to the U.S. stock and bond markets, and its implications for demography. A key issue is the ability of the model to explain both interest rates and stock prices. If baby-boomers are saving for retirement, their behavior should push up the prices of both stocks and long-term bonds, lowering expected returns on both. Unlike stocks, bonds come with a little yield that tells exactly what the expected return on the bond is. As of March 2004, due to the development of the market in Treasury inflation-protected securities, yield comes in both nominal and real varieties. As a result, real bond yields are considered an accurate way to measure expected returns. In this paper, although short-term interest rates are out of phase with the demographic variables and the level of the stock market, real long-term interest rates and the stock market move in perfect coordination. Long-term bond prices and stock prices therefore move together as well. Therefore, this paper implies that when stock prices are very high, as in the late 1990s, bond prices should also be high, and when stock prices are very low, as in the mid-1970s, bond prices should be low. However, this is not what actually occurred. Since bond prices and stock prices seem to be telling different scenarios, it is useful to look for other evidence on expected returns over the past decade.

Observed differentials among yield series for different types of long-term instruments—U.S, government bonds, municipal bonds, corporate bonds and residential mortgages—vary considerably over time. Many factors can contribute to observed long-term yield spreads, the most important of which are "technical" factors that relate to differences in the particular characteristics of instruments or in the investors that purchase them. These include the tax status of various types of income accruing to the security and the degree of certainty associated with that income. Long-term yield spreads might also be affected by relative security supplies and relatively exogenous demands, e.g., Federal agency demands for residential mortgages, particularly if institutional constraints on permissible yields or on the various sectors that purchase the long-term instruments exist. Failure to consider the effects of all of these factors has frequently created misunderstanding both in the financial press and in academia about the causes of observed yield spreads. For example, attempts have been made to measure the impact on long-term yield spreads of individual factors—such as default risk or relative security supplies—by comparing yield series without proper regard for the concurrent impact of other technical and/or fundamental factors. This paper deals exclusively with long-term corporate and U.S. government bond yields. The most widely used series are Salomon Brother's Aa deferred call new issue utility yield and the Federal Reserve Bulletin's average yield on bonds maturing or callable in 10 years or more. The spread between these series is shown as the solid line in Chart 1. (The dashed line will be discussed later.) The spread has moved over a wide range, rising sharply from 40 basis points in late 1965 to 235 basis points in the second quarter of 1970, subsequently falling to 140 basis points in early 1973, and then rising to almost 300 b... [ABSTRACT FROM AUTHOR]

This paper analyzes the emergence of the inflation premium in long-term interest rates as the explicit result of borrowers' and lenders' behavior in the bond market in response to expectations' of price inflation. By exploiting a structural modelling approach, this analysis seeks not only to estimate the magnitude of the inflation premium due to this portfolio behavior but also to identify the (in general differential) contributions to it of borrowers' and lenders' behavior. To anticipate, the empirical results suggest that the equilibrium portfolio responses to a marginal 1% of expected price inflation change the nominal long-term interest rate by about 2⁄3%, and that this premium reflects approximately equal responses by borrowers and lenders. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this paper is to present an innovative model to evaluate the fair price of a subset of structured products for a hypothetical US structured bond. Design/methodology/approach – The authors assume that interest rates dynamics are described by the Cox–Ingersoll–Ross process. They conduct robustness checks by stress testing against parameter and model uncertainty. Findings – The fair value of the bond is robust under any parameter or model misspecification. In addition, a change in the price seems to be more sensitive to long-term yields rather than short-or mid-term yields. The authors provide a better understanding of the relationship between bond prices and business cycles: a slight change in the current structure would have a significant effect on the bond price only during economic expansions. Social implications – The recent global financial crisis has led policymakers and the financial press to blame financial innovation through accusations of structured products being highly complex. Much of the criticism is based on the fact that investors were not able to properly price and fully understand the risks of their investments. Regulators should ensure proper pricing of these products to protect both the investors and the system. Fair pricing is important for bond issuers, governments or corporations to design their product at an attractive price for investors. Originality/value – This paper fills a gap in the extant literature by providing an innovative model based on an Euler–Maruyama Monte Carlo scheme to price structured products. [ABSTRACT FROM AUTHOR]

Despite powerful advances in interest rate curve modeling for data-rich countries in the last 30 years, comparatively little attention has been paid to the key practical problem of estimation of the term structure of interest rates for emerging markets. This may be partly due to limited data availability. However, emerging bond markets are becoming increasingly important and liquid. It is, therefore, important to be understand whether conclusions drawn from developed countries carry over to emerging markets. We estimate model parameters of fully flexible Nelson-Siegel-Svensson term structures model which has become one of the most popular term structure model among academics, practitioners, and central bankers. We investigate four sets of bond data: U.S. Treasuries, and three major emerging market government bond data-sets (Brazil, Mexico and Turkey). By including both the very dense U.S. data and the comparatively sparse emerging market data, we ensure that are results are not specific to a particular data-set. We find that gradient and direct search methods perform poorly in estimating term structures of interest rates, while global optimization methods, particularly the hybrid particle swarm optimization introduced in this paper, do well. Our results are consistent across four countries, both in- and out-of-sample, and for perturbations in prices and starting values. For academics and practitioners interested in optimization methods, this study provides clear evidence of the practical importance of choice of optimization method and validates a method that works well for the NSS model. [ABSTRACT FROM AUTHOR]

This paper examines the economic impact of the Sarbanes-Oxley Act (SOX) by studying foreign firms’ choice of whether to issue bonds in the U.S. public bond market or elsewhere before and after the law’s enactment in 2002. After controlling for firm characteristics, bond features, home-country attributes, and market conditions, I find that foreign firms rely less on the U.S. public bond market after SOX. Additionally, some determinants of choosing the U.S. public bond market have changed since the passage of SOX: firms listing equities on U.S. stock exchanges, adopting International Financial Reporting Standards (IFRS), and doing large bond issuances are more likely to choose this market in the post-SOX period than in the pre-SOX period. Overall, these results are consistent with a shift in the expected costs and benefits of choosing the U.S. public bond market following SOX. This paper provides the first evidence about how SOX influences debt financing decisions and alters capital flows across international bond markets. [ABSTRACT FROM AUTHOR]

This article presents comments and discussion on "Cracking the Conundrum," a paper presented at the Brookings Panel on Economic Activity on March 29 and 30, 2007 that presented an inquiry into the failure of long-term rates to respond as expected to the U.S. Federal Reserve's monetary tightening actions. Analysis is made of the theoretical framework using new models of factors affecting long-term rates. From a macroeconomic perspective, the short-term interest rate is a policy instrument under direct control of the central bank, which adjusts that rate to achieve goals of macroeconomic stabilization. There is discussion comparing the behavior of Asian central banks to the Treasury market and how revaluation of China's currency could create an asymmetric response in foreign bond markets.

This paper studies the price responsiveness (effective duration) of U.S. government issued inflation-indexed bonds, known by the acronym TIPS (Treasury Inflation-Protected Securities), to changes in nominal interest rates, real interest rates, and expected inflation. Using the TIPS pricing formula derived by Laatsch and Klein [Q. Rev. Econ. Finance 43 (2002) 405], we first confirm that TIPS bonds have zero sensitivity to changes solely in expected inflation. By changes solely in expected inflation, we mean that the real rate remains unchanged and the nominal rate changes in accordance with the established Fisher [Publ. Am. Econ. Assoc. 11 (1896)] effect. We show that the first derivative of the TIPS price is zero whenever the real rate is held constant. Thus, the first partial derivative of the TIPS bond pricing formula with respect to expected inflation is zero and the first partial derivative of the TIPS bond price with respect to nominal rates is also zero, given, in each case, that we hold the real rate constant. We then temporarily shift the analysis to zero-coupon TIPS bonds and zero-coupon ordinary Treasury bonds. We prove that the nominal duration of zero-coupon TIPS bonds equals that of zero-coupon ordinary Treasury bonds when the real rate changes but expected inflation is held constant. However, if expected inflation changes and the change in the nominal rate does not yield a constant real rate, zero-coupon TIPS prices will change and they will change by a smaller percentage than will zero-coupon ordinary Treasury bonds. We analyze TIPS responsiveness to changes in nominal rates under such conditions. We derive an approximation to effective duration that demonstrates that the effective durations of various maturity zero-coupon TIPS bonds are approximately linear functions in time to maturity of the effective duration of the one-year zero-coupon TIPS bond, ceteris paribus. Nominal effective duration of TIPS bonds is certainly of interest to fixed income portfolio managers that might have a desire to include such bonds in their portfolio. After all, the greater portion of a typical fixed income portfolio is in traditional, noninflation protected bonds whose major risk exposure is to changes in nominal rates. To properly assess the role of TIPS bonds in the portfolio, portfolio managers need information as to how TIPS bonds respond to the changes in nominal rates that are driving the price behavior of the bulk of the portfolio's assets. Prior to concluding the paper, we demonstrate how portfolio managers can calculate the nominal durations of coupon TIPS bonds using the zero-coupon duration formula we derive. [ABSTRACT FROM AUTHOR]

This paper aims to provide empirical evidence to the theoretical claim that rare disaster risks affect government bond market movements. Using a nonparametric quantiles‐based methodology, we show that rare disaster‐risks affect only volatility, but not returns, of 10‐year government bond of the United States over the monthly period of 1918:01 to 2013:12. In addition, the predictability of volatility holds for the majority of the conditional distribution of the volatility, with the exception of the extreme ends. Moreover, in general, similar results are also obtained for long‐term government bonds of an alternative developed country (UK) and an emerging market (South Africa). [ABSTRACT FROM AUTHOR]

A conference paper on the performance of corporate bonds in the U.S. during 1964 is presented. The author feels that the bond market will be affected by the economy overall, the growth of economic development, changes in the market, and market response. The author predicts that mortgage debt will increase as will borrowing by the U.S. Treasury because of a tax cut. Another prediction is that an overall increase in income will allow nonbank financial institutions to invest more money.

The article discusses the basic yields from corporate bonds in the U.S. during the period 1952-1957. The yield series first examines a short period right after the Republicans came into power in the spring and summer of 1953. Next, a period beginning in the middle of 1956 and lasting until 1957 is examined, which the author states is more dramatic and longer. The article also discusses the uncertainty of short-term basic yields, basic yields and time series, and the implied forecasts of future yields. Several tables and equations are provided to help illustrate the study.

The article explores the bond market agenda of the U.S. Securities and Exchange Commission (SEC) and the incentives it provides to dealers, trading systems and other market services. Topics discussed include recommendation to the SEC to enhance the efficiency of bond markets, an overview of the organization of the bond market, the regulation of bond trading, and factors that may influence the evolution of bond trading.