Interest Rate Risk - Publications - Faculty & Research - Harvard Business School

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January – March 2012
Article

Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates

By: Luis M. Viceira

This paper explores time variation in bond risk, as measured by the covariation of bond returns with stock returns and with consumption growth, and in the volatility of bond returns. A robust stylized fact in empirical finance is that the spread between the yield on... View Details

Keywords: Bonds; Volatility; Forecasting and Prediction; Interest Rates; Inflation and Deflation; Investment Return; Risk and Uncertainty; Currency Exchange Rate; Cash Flow; Stocks

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2023
Working Paper

Sovereign Default and the Decline in Interest Rates

By: Max Miller, James Paron and Jessica Wachter

Sovereign debt yields have declined dramatically over the last half-century. Standard explanations, including aging populations and increases in asset demand from abroad, encounter difficulties when confronted with the full range of evidence. We propose an explanation... View Details

Keywords: Inflation and Deflation; Interest Rates; Debt Securities

2023
Working Paper

The Market for Sharing Interest Rate Risk: Quantities and Asset Prices

By: Ishita Sen, Umang Khetan, Jane Li and Ioana Neamtu

We study the extent of interest rate risk sharing across the financial system using granular positions and transactions data in interest rate swaps. We show that pension and insurance (PF&I) sector emerges as a natural counterparty to banks and corporations: overall,... View Details

Keywords: Interest Rates; Investment Funds; Banks and Banking; Insurance; Investment Banking; Risk and Uncertainty

August 2017 (Revised February 2024)
Teaching Note

Exotic Interest Rate Swaps: Snowballs in Portugal

By: Boris Vallee, Patrick Augustin and Philippe Rich

This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of... View Details

Keywords: Swaps; Public Finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal

June 1995 (Revised May 1996)
Teaching Note

B.F. Goodrich-Rabobank Interest Rate Swap, The TN

By: Andre F. Perold and Wai Lee

Teaching Note for (9-284-080). View Details

Keywords: Credit Derivatives and Swaps; Rubber Industry

January 2017
Case

Exotic Interest Rate Swaps: Snowballs in Portugal

By: Boris Vallee, Patrick Augustin and Philippe Rich

This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of... View Details

Keywords: Swaps; Public Finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal

2024
Article

Supply and Demand and the Term Structure of Interest Rates

By: Robin Greenwood, Samuel Hanson and Dimitri Vayanos

We survey the growing literature emphasizing the role that supply-and-demand forces play in shaping the term structure of interest rates. Our starting point is the Vayanos and Vila (2009, 2021) model of the term structure of default-free bond yields, which we present... View Details

Keywords: Demand and Consumers; Interest Rates; Bonds; Financial Markets

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October 22, 2012
Article

Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

By: Marco Di Maggio, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru and Vincent Yao

Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50%) induces a significant increase in car purchases (up to 35%). This effect is attenuated by voluntary deleveraging. Borrowers... View Details

Keywords: Monetary Policy; Household Finance; Refinancing; Contract Rigidities; Debt Rigidity; MPC; Deleveraging; Personal Finance; Household; Policy; Borrowing and Debt; Macroeconomics

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Article

The Effects of Interest Rates on Mortgage Prepayments

By: Jerry R. Green and John B. Shoven

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November 2023
Article

A Quantity-Driven Theory of Term Premia and Exchange Rates

By: Robin Greenwood, Samuel G. Hanson, Jeremy C. Stein and Adi Sunderam

We develop a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies. Since long-term bonds and foreign exchange are both exposed to unexpected movements in short-term interest rates, a shift in the... View Details

Keywords: Term Premium; Exchange Rate; Currency Exchange Rate; Bonds

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March 2025
Case

Calyx Global: Rating Carbon Credits

By: Michael W. Toffel and Adam Chen

This case describes how rating agencies and other organizations are seeking to improve the quality of carbon credits sold in the voluntary carbon market to organizations seeking to use them to supplement their internal decarbonization efforts to meet their net zero... View Details

Keywords: Service Design; Certification; Auditing; Auditor Reputation; Carbon Credits; Carbon; Rating Agency Disagreement; Ratings; Climate Change; Business Model; Environmental Sustainability; Corporate Social Responsibility and Impact; Conflict of Interests; Reputation; Business Strategy

1999
Chapter

Interest Rate Rules in an Estimated Sticky Price Model

By: Julio J. Rotemberg and Michael Woodford

Keywords: Interest Rates; Mathematical Methods

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1990
Working Paper

Short Rates and Expected Asset Returns

By: K. A. Froot

Keywords: Risk Aversion; Risk; International Investing; Risk and Uncertainty; International Finance; Asset Pricing; Behavioral Finance

11 Sep 2007
Working Paper Summaries

Bond Risk, Bond Return Volatility, and the Term Structure of Interest Rates

Keywords: by Luis M. Viceira

1972
Chapter

Risk and the Discount Rate for Public Investment

By: Michael C. Jensen and Martin J. Bailey

Keywords: Risk and Uncertainty; Investment; Public Sector

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November 1995
Comment

Comment on Inside Money, Outside Money, and Short-Term Interest Rates

By: Julio J. Rotemberg

Keywords: Money; Interest Rates

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April 2022 (Revised August 2022)
Case

Conflicts of Interest at Uptown Bank

By: Jonas Heese

In 2013, two employees debated whether to blow the whistle on their employer, Bell Bank, after completing an internal review that revealed undisclosed conflicts of interest. Bell Bank’s Asset Management business disproportionately invested clients’ money in Bell Bank’s... View Details

Fall 2024
Article

The Credit Rating Agency Market in Africa: Landscape and Future Research Directions

By: Saveshen Pillay and Anywhere Sikochi

We explore the role of credit ratings in global markets and highlight potential opportunities for research on the African credit rating agency market. We trace the evolution of credit ratings and conduct a comprehensive literature review of existing studies globally... View Details

Keywords: Credit Rating; Credit Rating Agencies; Credit; Conflict of Interests; Governing Rules, Regulations, and Reforms; Financial Markets; Africa

2021
Working Paper

International Evidence on the Effects of a Local Presence by U.S. Credit Rating Agencies

By: Liran Eliner, Michael Machokoto and Anywhere Sikochi

Major U.S. credit rating agencies are criticized for failing to understand developments in other economies and thereby impeding capital access by assigning lower ratings. Consistent with this, we find that Moody's and S&P credit ratings are more favorable after the... View Details

Keywords: Credit Rating Agencies; Credit Ratings; Rating Adjustments; Rating Disagreement; Geographic Proximity; Soft Information; Credit; Geographic Location; Local Range

When the Tailwind Stops: The Private Equity Industry in the New Interest Rate Environment

The consistent growth of long-term alternative asset managers in the past four decades coincided with the secular decline in interest rates. This has been an important tailwind for the private equity industry’s development as debt markets became increasingly... View Details

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