Direction of Interest Rate Movements and Interest Rate Trends of Mexican Treasury Security

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. Furthermore, 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 succeds 84% of the times on forecasting the direction of Treasury bills interest rates movements.

Interest rate movements

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