Quantitative Dimensions of Yield Curve Dynamics in Post-Pandemic Environment – The Case of Romania
Quantitative Dimensions of Yield Curve Dynamics in Post-Pandemic Environment – The Case of Romania

Summary/Abstract: The purpose of the research is to explore the characteristics in the dynamics of the Romanian government bond yield curve during the post-pandemic period and to reveal the related expectations for the development of the Romanian economy. Its results show that the Romanian government bond market begins the analysed period with clear positive expectations for the country's economic growth, but ends it with projections for short-term economic slowdown at a moderate reduction of inflation. The study also reveals that in the behaviour of the Romanian government bond market there are two distinct segments influenced by different economic factors – one in the maturity spectrum 6 months–1 year and the other in the maturity range between 2 and 10 years. The results from conducted principal component analysis show that the most important factor of the dynamics in the studied yield curve is inflation with a contribution of 88.16%, followed by economic growth and the type of the monetary policy with weights of 8.89% and 1.33% respectively. In turn, the direction of influence of these factors reveals that in the post-pandemic period, portfolios of Romanian government bonds with maturities between 2 and 10 years can be successfully hedged against interest rate risk even using duration-based techniques alone.

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