Treasury yields in the global bond market exhibit a secular decline in the past four decades. We show that this long-run trend of yield curve is associated with two key macroeconomic variables, the trend inflation and the equilibrium real short rate. These variables demonstrate substantial variation over time. Accounting for time variation of these macro trends is crucial for understanding yield dynamics. Changes in both trends can explain high persistence in interest rates. Furthermore, substantial predictive gain is obtained by including both trends in the predictive regression for bond risk premia in international bond markets.
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Yugui Zhang, Jie Zhu, Xiaoneng Zhu, Global bond risk premia under falling stars, Finance Research Letters, 2021, 101916, ISSN 1544-6123,