Donald R. van Deventer's Blog

Today’s forecast for U.S. Treasury yields is based on the April 15, 2010 constant maturity Treasury yields reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release reported at 4:15 pm April 16, 2010. The “forecast” is the implied future coupon bearing U.S. Treasury yields derived using the maximum smoothness forward rate smoothing approach developed by Adams and van Deventer (Journal of Fixed Income, 1994) and corrected in van Deventer and Imai, Financial Risk Analytics (1996). For an electronic delivery of this interest rate data in Kamakura Risk Manager table format, please subscribe via info@kamakuraco.com.

Credit Magazine’s European Awards Poll

By Donald van Deventer on 4/12/2010 12:26 PM

It is our pleasure, per the message below, to pass along this invitation to clients and friends of Kamakura Corporation to participate in the Credit Magazine European Awards poll.

Donald R. van Deventer
Kamakura Corporation
April 12, 2010

Friday Forecast: 10 Year Monthly Forecast of U.S. Treasury Yields

By Donald van Deventer on 4/9/2010 2:23 PM

Today’s forecast for U.S. Treasury yields is based on the April 8, 2010 constant maturity Treasury yields reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release reported at 4:15 pm April 9, 2010. The “forecast” is the implied future coupon bearing U.S. Treasury yields derived using the maximum smoothness forward rate smoothing approach developed by Adams and van Deventer (Journal of Fixed Income, 1994) and corrected in van Deventer and Imai, Financial Risk Analytics (1996). For an electronic delivery of this interest rate data in Kamakura Risk Manager table format, please subscribe via info@kamakuraco.com.

Basic Building Blocks of Yield Curve Smoothing, Part 13: Smoothing Credit Spreads

By Donald van Deventer on 4/7/2010 11:47 AM

In part 10 of this series on yield curve smoothing, we showed why the maximum smoothness forward rate approach is superior to the wide range of alternative smoothing methods we have introduced in this series, including the deeply flawed Nelson-Siegel approach. In part 12 of this series, we showed that using bond prices as inputs to the smoothing process is a modest extension to the smoothing we did in part 10. In this blog, we show that it is incorrect, sometimes disastrously so, to apply smoothing to a yield curve for an issuer with credit risk, ignoring the risk free yield curve. We show alternative methods for smoothing the zero coupon credit spread curve, relative to the risk free rate, to achieve far superior results. Smoothing a curve for an issuer with credit risk without reference to the risk free curve is probably the biggest mistake one can make in yield curve smoothing and we show why below.

Kamakura Blog: Expanded Distribution of KRIS Default Probabilities on Reuters 3000 Xtra

By Donald van Deventer on 4/2/2010 1:47 PM

Kamakura Corporation is very pleased to report that we have substantially expanded our relationship with the team at Thomson Reuters. Thomson Reuters began distributing a small subset of the Kamakura Risk Information Services default probabilities in 2009. Beginning next week, KRIS default probabilities for the 1,700 public firms with traded credit default swaps will be available on the Reuters 3000 Xtra service, along with KRIS sovereign default probabilities for 100 countries. This expanded service will allow subscribers to the Reuters 3000 Xtra service to make daily comparisons between credit default swap quotations from Reuters and Markit with the KRIS default probabilities. This allows investors to make a fully informed judgment about whether the risk premiums implicit in CDS spreads are sufficiently high to induce the investor to provide credit protection on that corporate or sovereign credit.

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