The term structure of interest rates: U.S. government bonds, 1955-1989

Abstract

The behavior of the term structure of interest rates in government bonds parallels that of the behavior in high-grade corporate bonds. Previous studies have demonstrated that there are synchronous changes in different maturities in high-grade corporate bonds. Results of statistical tests and measurements of the term structure in U.S. Treasury obligations are compared with previous studies to confirm that the behavior of the yield curve, from the mid-1950's until the 1970's, is consistent with previous norms that there are synchronous changes in all maturities but that there has been an increase in the relative sensitivity of changes in longer term rates since the 1970's per unit change in the short term rates. Generally, all maturities move in the same direction with intermediate and long term rates more synchronous than shorter term rates. Changes in rates are highly correlated across all maturities, but intermediate and short term rates are somewhat more highly correlated with each other than with long term rates. Also, there is a general tendency for relative volatility to vary inversely with maturity. However, there was an increase in the relative volatility of longer term rates in the 1970's and 1980's. The results are generally consistent with Meiselman's earlier findings for high grade corporate bonds between 1900 and 1954, except for the more recent increase in the volatility of long term U.S. Treasury bonds.