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49

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JRYW DDD DD D EEE EE E

vlqjoh0fxuyh ghjuhh nqrwv 6 6/ < 6 6 6 6 6 6 6/ < 6/ < 6/ < 8 8 8

pxowl0fxuyh ghjuhh nqrwv 6 6/ < 5 5 5 5 5 5 < < < 8 8 8

ILERU fruuhfwlrq 053 043 3 .43 .53 .63 .73

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JRYW DDD DD D EEE EE E

VF VF PF VF PF VF PF VF PF VF PF VF PF

jrrgqhvv ri w 313< 3165 3166 315; 315< 3165 3165 317: 3185 618 61; 816 816

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Wdeoh 7= Vxppdu| vwdwlvwlfv ri vlqjoh0fxuyh +VF, dqg pxowl0fxuyh +PF, hvwlpdwhv/ dyhudjhg ryhu doo 53 wudglqj gd|v ri Mxqh 4<<;1 Jrrgqhvv ri w lv fdofxodwhg dv wkh Urrw Phdq Vtxduhg Huuru +UPVH, ri wkh uhvlgxdov1 Vprrwkqhvv lv phdvxuhg dv +43; wlphv, wkh lqwhjudo ri wkh vtxduh ri wkh vhfrqg ghulydwlyh/ dqg lv fdofxodwhg iru wkh vsrw fxuyh dqg wkh vsrw vsuhdg fxuyh1 Uholdelolw| lv +437 wlphv, wkh vwdqgdug huuru ri wkh hvwlpdwhg vsrw fxuyh/ hydoxdwhg dw pdwxulwlhv 5/ 8 dqg 43 |hduv1

GOVT AAA AA A BBB BB B

Iljxuh 4= Glvwulexwlrq ri wkh pdwxulw| gdwhv ri wkh erqgv lq wkh hvwlpdwlrq vdpsoh e| udwlqj fdwhjru|1

53

6% SC GOVT spot 5% 4% 3% 0 6% 5% 4% 3% 0 6% 5% 0.2% 4% 3% 0 5 10 15 0.1% 5 10 15 20 25 30 0.3% 10 SC AAA spot SC AAA spread 20 30 0.3% 0.2% 0.1% 0.0%

1.0 0.5 0.0 1998 -0.5 -1.0 1.0

SC GOVT residuals

3 2 1 0 1998 3

GOVT bonds SC GOVT s.e.

2003

2008

2013

2018

2023

2028

2003

2008

2013

2018

2023

2028

SC AAA residuals 0.5 0.0 1998 -0.5 -1.0 1.0 0.5 0.0 1998 -0.5 -1.0 1.0 0.5 0.5% 0.3% 0.1% 0.0 1998 -0.5 -1.0 1.0 0.5 0.0 1998 -0.5 -1.0 10 10% 8% 6% 4% 2% 0% 5 0 1998 -5 -10 10 10% 8% 6% 4% 2% 0% 5 0 1998 -5 -10 SC B residuals SC BB residuals SC BBB residuals 2003 2008 2013 2018 2023 2028 SC A residuals SC AA residuals 2 1 0 1998 3 2 1 0 1998 3 2 1 0 1998 3 2 1 0 1998 40 30 20 2003 2008 2013 2018 2023 2028 10 0 1998 40 30 20 2003 2008 2013 2018 2023 2028 10 0 1998

AAA bonds SC AAA s.e.

2003

2008

2013

2018

2023

2028

2003

2008

2013

2018

2023

2028

SC AA spot SC AA spread

AA bonds SC AA s.e.

2003

2008

2013

2018

2023

2028

2003

2008

2013

2018

2023

2028

6% 5% 4% 3% 0 6% 5% 4% 3% 0

SC A spot SC A spread

0.7%

A bonds SC A s.e.

5 SC BBB spot SC BBB spread

10

15 1.0% 0.8% 0.6% 0.4% 0.2%

2003

2008

2013

2018

2023

2028

BBB bonds SC BBB s.e.

2003

2008

2013

2018

2023

2028

5 SC BB spot SC BB spread

10

15

2003

2008

2013

2018

2023

2028

12% 10% 8% 6% 4% 2% 0% 0

BB bonds SC BB s.e.

5 SC B spot SC B spread

10

15

2003

2008

2013

2018

2023

2028

12% 10% 8% 6% 4% 2% 0% 0

B bonds SC B s.e.

10

15

2003

2008

2013

2018

2023

2028

(a)

(b)

(c)

Iljxuh 5= Vlqjoh0fxuyh +VF, hvwlpdwhv iru Mxqh 5qg 4<<;1 Judskv +d, vkrz hvwlpdwhg vsrw fxuyhv +zlwk <8( frqghqfh lqwhuydov, dqg vsrw vsuhdg fxuyhv> judskv +e, frqwdlq uhvlgxdov> judskv +f, glvsod| +4333 wlphv, wkh vwdqgdug huuruv +v1h, ri hvwlpdwhg glvfrxqw fxuyhv1

54

0.3% 0.2% 0.1% 0.0% 0

SC AAA spread: degree 3, knots {3,9} MC AAA spread: degree 2, knots {9}

1.0 0.5 0.0 1998 -0.5

MC AAA residuals SC AAA residuals

3 2

AAA bonds MC AAA s.e. SC AAA s.e.

2003

2008

2013

2018

2023

2028

1 0 1998

10

15

20

25

-1.0 1.0 0.5 0.0 1998 -0.5 MC AA residuals SC AA residuals

2003

2008

2013

2018

2023

2028

SC AA spread: degree 3, knots {3,9} MC AA spread: degree 2, knots {9}

3 2 1 0 1998

AA bonds MC AA s.e. SC AA s.e.

2003

2008

2013

2018

2023

2028

10

15

-1.0 1.0 0.5 0.0 1998 -0.5 MC A residuals SC A residuals

2003

2008

2013

2018

2023

2028

0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0

SC A spread: degree 3, knots {3,9} MC A spread: degree 2, knots {9}

3 2 1 0 1998

A bonds MC A s.e. SC A s.e.

2003

2008

2013

2018

2023

2028

10

15

-1.0 MC BBB residuals SC BBB residuals

2003

2008

2013

2018

2023

2028

SC BBB spread: degree 3, knots {5} MC BBB spread: degree 2, knots {5}

1.0 0.5 0.0 1998 -0.5 -1.0

3 2

BBB bonds MC BBB s.e. SC BBB s.e.

2003

2008

2013

2018

2023

2028

1 0 1998

10

15 10 5 0 1998 -5 MC BB residuals SC BB residuals

2003

2008

2013

2018

2023

2028

5% 4% 3% 2% 1% 0% 0 7% 6% 5% 4% 3% 2% 1% 0% -1% 0

SC BB spread: degree 3, knots {5} MC BB spread: degree 2, knots {5}

40 30 20

BB bonds MC BB s.e. SC BB s.e.

2003

2008

2013

2018

2023

2028

10 0 1998

10

15

-10 10 5 0 1998 -5 MC B residuals SC B residuals

2003

2008

2013

2018

2023

2028

SC B spread: degree 3, knots {5} MC B spread: degree 2, knots {5}

40 30 20

B bonds MC B s.e. SC B s.e.

2003

2008

2013

2018

2023

2028

10 0 1998

10

15

-10

2003

2008

2013

2018

2023

2028

(a)

(b)

(c)

Iljxuh 6= Vlqjoh0fxuyh +VF, dqg pxowl0fxuyh +PF, hvwlpdwhv iru Mxqh 5qg / 4<<;1 Judskv +d, vkrz vsrw vsuhdg fxuyhv +zlwk <8( frqghqfh lqwhuydov iru PF vsuhdgv,> judskv +e, frqwdlq uhvlgxdov> judskv +f, glvsod| +4333 wlphv, wkh vwdqgdug huuruv +v1h, ri hvwlpdwhg glvfrxqw fxuyhv1

55

0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0

SC degree 3, knots {3,9} MC degree 3, knots {3,9}

0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10%

SC degree 2, knots {3,9} MC degree 2, knots {3,9}

5 SC degree 3, knots {3} MC degree 3, knots {3}

10

15 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10%

5 SC degree 2, knots {3} MC degree 2, knots {3}

10

15

5 SC degree 3, knots {9} MC degree 3, knots {9}

10

15 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10%

5 SC degree 2, knots {9} MC degree 2, knots {9}

10

15

10

15

10

15

Iljxuh 7= Vlqjoh0fxuyh +VF, dqg pxowl0fxuyh +PF, vsrw vsuhdg fxuyhv iru fdwhjru| D rq Mxqh 5qg / 4<<; rewdlqhg zlwk glhuhqw vhwwlqjv ri wkh ghjuhh dqg wkh nqrwv1

56