Estimating Term Structure Changes using Principal Component Analysis in Indian Sovereign Bond Market
Published: 2013
Author(s) Name: Golaka C Nath, Manoj Dalvi |
Author(s) Affiliation: 1 - Clearing Corporation of India, India; 2 - Associate Professor, Long Island University, New York
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Abstract
This paper analyses the Indian sovereign yield curve shift from January 1997 to May 2012 to find out the principal factors
affecting the term structure of interest rate changes. We apply Principal Component Analysis (PCA) on our data consisting of zero coupon
interest rates derived from government bond trading using Nelson-Siegel functional form. This decomposition of the yield curve highlights
important relationship between identified factors and metrics of the term structure shape. The empirical findings support statistical similarities
between the Indian yield curve and term structure studies of major countries.
Keywords: Indian Sovereign Yield Curve, Principal Component, Interest Rates, Bond, Yield Curve, Macro-economics, and Term Structure of Interest Rates
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