New Zealand Zero-Coupon Yield Curves: A Principal-Components Analysis

May 2008

Abstract

This paper describes the statistical properties of a new set of zero-coupon bond yields constructed from New Zealand Government Bond market data. These yields are constructed following the method of Nelson and Siegel (1987) and the extension by Svensson (1994). Trends in the shape of the zero-coupon curve since 1993 are documented. Despite several notable differences between the shapes of the yield curves derived for New Zealand and those for other OECD economies, results in this paper generally confirm that movements in the returns on New Zealand government bonds can be decomposed into the same level, slope, and curvature principal-components that a large literature has documented for various other economies. However, we do find some evidence that a fourth principal-component may also be important in explaining bond return variation.