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PAIR COPULA CONSTRUCTIONS TO DETERMINE THE DEPENDENCE STRUCTURE OF TREASURY BOND YIELDS

Marcelo Brutti RIGHI, Sergio Guilherme SCHLENDER and Paulo Sergio CERETTA

In this paper we estimated the dependence structure between Treasury bonds through a pair copula construction. To that effect, we used data from the US government Treasury bonds   for 1-, 2-, 3-, 5-, 7- and 10-years of maturity. We verified that the daily yields presented a common evolution along the sample, with the variability of the yields decreasing when length of time taken for maturity of the bond increased. The yields presented strong dependence with past values. The bivariate associations between the daily variations of the yields were strongly positive and with associations in the tails. There was an absolute predominance of the Student’s t copula in the relationships between the bonds. The tail measures presented relevant values in most of the relationships, and were similar to the absolute one in almost all cases. The 7-year bond presented the greatest mean for the Kendall’s tau and tail measures, when we considered its relation with the other bonds.