Direction of interest rate movements and interest rate trends of mexican treasury securities

摘要

This empirical study focuses on the short-term movements of the Mexican yield curve. Consistent with the fixed-income literature one shows that three factors (level, steepness, and curvature) explain shocks on the short-term Mexican yield curve. Futhermore, using a principal component analysis, one provides i) a three-factor model to forecast the direction (up or down) of Treasury bills interest rates movements and ii) a tool to detect, a priori, the change of trends on Treasury bills interest rates. The three-factor model succeeds 84% of times on forecasting the direction of treasury bills interest rates movements.