An Empirical Study On The Relationship Between Taiwanese Public Bond Yield Rate And Major Macroeconomic Indicators

Taiwan has been gradually implementing financial liberalization polices since 1980s. As a fundamental financial market, Taiwan's public bond market witnesses significant development: its issue size and transaction volume are expanding, term structure is refining, and a favorable yield curve is forming. However, researchers incline to exert more emphasis on the stock market study, while pay less attention to bond market study. As a result, academic research on Taiwan's public bond market is still insufficient, in terms of quantity and depth, compared to its counterpart on stock market. Moreover, Mainland is still lack of relevant research on the relationship between Taiwanese public bond yield and Taiwan's major macroeconomic indicators.In order to study the interaction between public bond market and Taiwanese macroeconomic fluctuation, this paper employs the statistics of 10-year Taiwanese public bond yield rate and ten major macroeconomic indicators in monthly data format taken from Jan 1997 to Dec. 2006. Based on macroeconomic theories and econometric methodologies, this paper empirically studies the leading-lag relationship between economic indicators and the 10-year public bond yield rate, and tries to find out their long-term equilibrium and short-term fluctuation. The ultimate objective of this empirical study is to evaluate the effectiveness and maturity of Taiwan's public bond market.The empirical results reveal two major points. (1) By no means is Taiwanese public bond market an isolated market, but it has possessed some characteristics as a mature financial market. (2) Taiwanese public bond market is still a weak-efficient capital market, which cannot reflect upcoming economic situation as a macroeconomic'barometer'.