The nominal duration of TIPS bonds

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.     

Shareowners' Equity at Campbell Soup: How can Equity be Negative?

Abstract

This paper presents an instructional case based on the 2001 annual report of the Campbell Soup Company (CPB). During that year, CPB's shareowners' equity went from a surplus of USD137 million to a deficit of USD247 million. The analysis will allow students to determine that the change resulted from borrowing to purchase treasury stock. Students are asked to consider why CPB's lenders allowed the firm to purchase so much treasury stock with borrowed funds. The case provides an opportunity for students to improve their understanding of the impact of shareowners' equity transactions on the entire balance sheet, and to examine the effect of unreported and under-reported assets on financial statement information.     

A Test of Integration and Cointegration of Commercial Mortgage Rates

Little empirical work examines the extent to which commercial mortgage markets are integrated into broader capital markets. We use time series data on commercial mortgage yields and yields on comparable-maturity Treasury securities to identify a long-run cointegrating relationship between the two yield series. Our empirical evidence suggest that, while the yield on commercial mortgage is cointegrated with that on comparable-maturity Treasury securities, the cointegrating relationship is far less than that found between the yield on residential mortgage rates and that on comparable-maturity Treasury securities during 1980–1990 time period. However, our results also show that the spate of commercial mortgage securitization that began in early 1991 may have been a market-integrating force and caused the commercial mortgage market to become more integrated into broader capital markets. Indeed, our results suggest that changes in capital market rates are now much more rapidly reflected in commercial mortgage rates than in the 1980–1990 time period, although there is a lag.     

浅析中国增持美国国债的原因

金融危机后,美国大量发行国债,我国作为出口大国,与此有着密切的联系,因此我国仍在大量增持美国国债。美国财政部公布的做新数据,中国自去年11月以来持有美国国债总额首次突破9000亿美元,在这样庞大的数字下,隐藏着重要的政治经济原因。影响中国持有美国国债的因素有外汇储备结构、中国外汇制度、人民币国际化、中国的国际地位等。中国增持美国国债充分体现中国在维持世界金融稳定、促进世界经济复苏的不可磨灭的功劳。本文从中国央行购买大量美国国债的事实出发,试分析原因以及所产生的影响。     

Improving the predictability of real economic activity and asset returns with forward variances inferred from option portfolios

This paper presents an option positioning that allows us to infer forward variances from option portfolios. The forward variances we construct from equity index options help to predict (i) growth in measures of real economic activity, (ii) Treasury bill returns, (iii) stock market returns, and (iv) changes in variance swap rates. Our yardstick for measuring predictive ability is both individual and joint parameter statistical significance within a market, as well as across a set of markets.     

Typology for flight-to-quality episodes and downside risk measurement

We propose a total return-based framework to measure downside risk associated with phenomenon of capital outflows from riskier to safer financial markets. The proposed method consists of three elements: (i) the general definition of the flight-to-quality (FtQ) phenomenon, (ii) the typological classification of the flight-to-quality occurrences for associating them with the phases of the business cycle and (iii) the automated technique to diagnose the time frames and to measure the impact of flight-to-quality on financial instruments. The proposed framework is applied to analyse the global-scale capital inflows/outflows from emerging markets public debt to the US Treasuries and vice versa. The results show that different phases of business cycles and GDP growth rates, including turning points, could be associated with flights-to-quality of different types and causality origins. Addressing downside risk crystallizations in flight-to-quality occurrences, new perspectives of integrated interest rate risk and credit risk management are discussed. For strengthening financial stability, we suggest the use of flight-to-quality windows as scenarios for stress testing, both for banks and financial institutions.     

农村居民购买国债存在的问题及建议——以吉林省通化市为例

目前由于农村地区国债发售体系不健全,农村居民购买国债受到发售网点不足、发行信息缺失、发行额度限制及国债知识缺乏等因素影响,农村居民购买国债难的问题日渐突出。本文以吉林省通化市为例,通过对农村居民购买国债情况的深入调查,进一步分析农村国债发行体系存在的问题,并提出相关政策建议。     

国库库存纳入货币统计口径的可行性分析

货币供应量是我国货币政策的中介目标,目前我国货币供应量调控成本巨大,调控目标越来越难以实现,一些经济学家提出扩大货币统计口径的范围,给出了M3、M4等货币供应量指标,以引起货币当局对全社会资金的重视。与此同时,我国国库库存余额逐年加大,季节性波动明显,国库库存变动对与货币供应量和宏观经济的影响越来越大,在货币政策操作中需要密切关注国库库存的运行变化。本文首先描述了我国国库库存与货币供应量的特征,并分析了两者关系;接着探讨了将国库库存纳入货币统计口径的理论依据;然后利用近十年的数据检验将国库库存纳入货币统计口径后的实际效应;最后得出:货币当局将国库库存变量纳入中介目标监控体系,将有助于提高货币政策的有效性,并在结论的基础上给出相应的政策建议。     

农村金融税收政策执行中存在的问题及建议——以吉林省延边州龙井市为例

近年来,财政部和国家税务总局先后出台《财政部国家税务总局关于农村金融有关税收政策的通知》等一系列扶持农村金融发展新政,通过定向税收减免等方式极大地调动了金融机构支农的积极性,取得了较好的财税杠杆作用,但同时也存在新政策惠及范围较小、新政策扶持时间较短等问题,制约了政策效应的有效发挥。     

Fiscal incentives, corporate structure and financial aspects of treasury management operations

This paper presents evidence that tax policy affects corporate structure and intra-group financial flows, using a data base of Irish registered firms. How MNC's corporate structure and financial flows react to tax policy is complex. Fiscal incentives play a key role in Irish industrial policy. The paper examines certain financial characteristics of financial subsidiaries (those managing group treasury functions) in Ireland. These characteristics are a tax haven connection, high ratios of revenues to pre-tax profits (in some cases greater than 100%), high intra-group borrowing or lending, large gross assets (in excess of €500 million) and low or zero employment. While these firms pay corporation tax in Ireland (at reduced rates), there is considerable loss to other exchequers. The paper concludes that such tax haven type activities are unlikely to remain a viable part of future industrial policy in Ireland.