The Chinese Market, According To A Study On The Feasibility Of The Macroeconomic Regulation And Control Of The Yield Curve

The government bond market is an extremely important part of Chinese bond market, so yields on the government bond are critical to the bond market as well as the whole financial market. As a result, the shapes and changes in yield curve for government bond become an important research object. Theoretically, through studies on government bond yield curve, we could effectively expand central bank’s monetary instruments, thus promoting the development of China’s financial system towards more efficient and healthier direction. In this article, we will analyze the macro information, specifically future inflation information, in the yield curve for government bonds on the basis of in-depth study on development of Chinese bond market.In the empirical study, we selected daily inter-bank bond transaction data from end of2006to mid-2009and used Nelson-Siegel model with the help of MATLAB software to fit the daily yield curve. Because of the limited data sample, we used the classical Fisher Theorem to assess whether six month or shorter nominal interest rate in government bonds’yield curve could predict future inflation pressure; we took full use of results from NS model and used level factor model to assess the predictive ability of long term nominal interest rate in governmental bond yield curve on the rate of inflation. The empirical results show that in our study period, the inter-bank government yield curve has no apparent prediction on future inflation in the short end, while contains a lot of future inflation information in the long term end.