Empirical Research on Forecasting Power of Chinese Bonds´ Interest Rate Term Structure

Abstract-According to the expectations hypothesis theory of interest rate term structure, the interest rate term structure contains the information about future interest term spread and future inflation rates changing. In this paper, based on Chinese whole dealing bonds´ monthly data of five years, from 2004.07 to 2009.06, by using numerical methods we construct term structure both against time and against maturity first. Then we do the empirical study to test the forecasting power of Chinese bonds´ interest term structure, in other words, we use the long and short term spread to analyse the expectation of the future term spread and the inflation rates changing. The empirical result shows that, Chinese bonds´ spread can forecast the future term spread and future inflation rates changing.