Daily Versus Monthly Sampling in Term Premium Estimates

Summary

The document compares term-premium estimates for Polish government bonds using daily and month-end monthly observations of the ten-year yield. The yields are interpolated from a Nelson-Siegel-Svensson curve built from bootstrapped zero-coupon yields, and the estimates use the Adrian, Crump, and Moench approach.

Although the monthly observations are sampled from the daily series, the resulting term-premium paths differ substantially, especially during the Polish central bank’s quantitative easing period in 2020–2021. The monthly estimate appears more similar to estimates for German government bonds, prompting the question of which frequency is more reliable. The document reports this discrepancy but does not provide diagnostics, a causal explanation, or a resolution; sampling frequency alone does not establish which estimate is better.

Key ideas

• Term-premium estimates can differ sharply when the same yield history is sampled daily or monthly.
• The estimates use the Adrian, Crump, and Moench method on ten-year Polish government bond yields.
• The divergence is particularly visible during the 2020–2021 quantitative easing period.
• Similarity to German bond estimates does not by itself establish that the monthly result is more reliable.

Tags

# Term premium with daily vs monthly time series


# Term premium with daily vs monthly time series












I have estimated the term premium for the Polish Government Bonds (POLGBs) using the methods described by Adrian et al. (2013) (often referred to as ACM). The underlying yields are interpolated from the Nelson-Siegel-Svensson model based on a bootstrapped zero-coupon yield curve.

I have estimated the model for two time series:

1. Daily 10Y POLGBs Yields from 24/01/2005 to 20/05/2022

2. Monthly 10Y POLGBs Yields from the last day of each calendar month from 24/01/2005 to 20/05/2022

Although the monthly yields are subsetted from the daily yields, the picture painted by each term-premium estimate is drastically different, especially during the 2020-2021 quantitative easing program from the Polish Central Bank. The monthly term-premium would have similar dynamics to the analogous term-premium estimates for the German BUNDs. Which estimate would you find more reliable?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.