Pair copula constructions to determine the dependence structure of Treasury bond yields

Abstract

We estimated the dependence structure of US Treasury bonds through a pair copula construction. As a result, we verified that the variability of the yields decreases with a longer time of maturity of the bond. The yields presented strong dependence with past values, strongly positive bivariate associations between the daily variations, and prevalence of the Student's t copula in the relationships between the bonds. Furthermore, in tail associations, we identified relevant values in most of the relationships, which highlights the importance of risk management in the context of bonds diversification.

Keywords

• Treasury bonds
• Pair copula construction
• Dependence structure