ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Yield Curve Construction: A Note on the Moldovan bond market

Olesea Speian, Victoria Ganea and Constantinos Kyriakopoulos

Correspondence: Constantinos Kyriakopoulos, k_kiriak@otenet.gr

Department of Mathematics, National and Capodidtrian University of Athens, Greece and EU finance expert

pdf (825.24 Kb) | doi: https://doi.org/10.47260/bae/919

Abstract

In this note we apply the Nelson Siegel model on the Moldovan Government Securities market. In the Republic of Moldova although remarkable progress for the construction of a medium yield curve has been made during the last five years, the market still lacks the liquidity and depth level that would allow the application of market-based models for the credible description of the yields. Similar to countries with comparable stage of capital market development, the application of the Nelson Siegel model will provide a credible guidance for yields for tenors that either are not traded in the secondary market or even if they are traded the volume is so small that there is no a credible price and yield discovery mechanism.

Keywords:

  yield curve, bond market, liquidity level, Nelson – Siegel method


References

Baskot, B., Orsag, S., Mikerevic, D. (2018). Yield curve in Bosnia and Herzegovina: Financial and macroeconomic framework. In: Journal of Economics, ISSN 1857-6982, University of Tourism and Management, Skopje, Vol. 9, Iss. 1, pp. 1 – 15.

Bloomberg.

Bringo B., Mercurio F. Interest rate models, Theory and Practice, Springer Verlag, 2006.

Chakroun, F., Abi F. A Methodology to Estimate the Interest Rate Yield Curve in Illiquid Market The Tunisian Case. Journal of Emerging Market Finance, 2014, 13(3), pp. 305 – 333.

Chi Xie, Hui Chen and Xiang Yu (2006). Yield curve estimation in the illiquid market: framework, models and empirical study. In: International Journal of Information Technology & Decision Making, Vol. 5, No. 3, pp. 467–481.

Davor, Z., Silvije O. (2013). Parametric yield curve modelling in an illiquid and undeveloped financial market. In: UTMS Journal of Economics, Vol.4, 3, pp.243 – 252.

Goutam, D. Sankarshan, B. Krishnamurthy, V. (2005) Term Structure Estimation in Illiquid Government Bond Markets: An Empirical Analysis for India. In: Journal of Emerging Market Finance, 4:1, pp. 63 – 80.

Kalotay, A. (2017). Creating a Live Yield Curve in the Illiquid Muni Market. The Journal of Fixed Income, pp. 84 – 91.

Kempf, A. Uhrig-Homburg, M. (2000). Liquidity and its impact on bond prices. In: Schimalenbach Business Review, Vol. 52, pp.26 – 44.

Khakimzhanov, S., Mustafin, Y., Kubenbayev, О. and Atabek, D. (2019). Constructing a Yield Curve in a Market with Low Liquidity. Russian Journal of Money and Finance, 78(4), pp. 71–98.

Lartey, V.C., L, Y., Lartey, H.D. and Boadi, E.C. (2019). Zero-Coupon, Forward, and Par Yield Curves for the Nigerian Bond Market.

Ministry of Finance: www.mf.gov.md

Mohammad Nazri Alia, Siti Norafidah Mohd, Ramlib, Saunah Zainonc, Siti Nuur-Ila Mat Kamald, Mohamad Idham Md Razake, Norlina M. Alif, Suhaila Osman (2015). Estimating the Yield Curve for the Malaysian Bond Market Using Parsimony Method, Procedia Economics and Finance 31, pp. 194 – 198.

National Bank of Moldova: www.bnm.md

Nelson, C.R, Siegel, A.F. (1987), Parsimonious Modelling of Yield Curves, The Journal of Business, Vol. 60, No. 4 (Oct., 1987), pp. 473 – 489.

Pooter, M. (2007) Examining the Nelson Siegel Class of Term Structure Models, Tinbergen Institute Discussion paper TI-2007-043/4.

Radziwiłł, A., Şcerbaţchi O., Zaman, C. (1999). Financial Crisis in Moldova - Causes and Consequences. Warsaw: Studies & Analyses CASE, 192, 11 p.

Regulation on Placement, Transaction and Redemption of Government Securities in Book-Entry Form, approved by the Executive Board of the National Bank of Moldova no.170/2018 and the Order of the Minister of Finance no.129/2018, available on https://mf.gov.md/ro/lex

Subramanian, K.V. (2001). Term Structure Estimation in Illiquid Markets. In: The Journal of Fixed Income, 11, pp. 77 – 86.

Макушкин М.С., Лапшин В.А. (2021). Кривые доходностей на низколиквидных рынках облигаций: особенности оценки. Экономический Журнал ВШЭ, No 2, с.177 – 195.