Yield Curve Modeling and Business Implications: Evidence from Coupon-Bearing Government Bonds in Vietnam
DOI:
https://doi.org/10.65687/bjbs.v2i1.7Keywords:
coupon, bond, term structure, yield curveAbstract
This paper examines the empirical performance of the Nelson–Siegel (NS) and Nelson–Siegel–Svensson (NSS) models in estimating the term structure of interest rates from coupon-bearing government bonds in Vietnam. Using a comprehensive dataset covering more than 2,900 trading days and 77,000 bond observations on the Hanoi Stock Exchange, we implement a one-step estimation approach that directly fits model-implied prices to observed bond prices. Model performance is evaluated in terms of yield curve fitting, bond pricing accuracy, and stability over time. The results reveal a clear trade-off between parsimony and flexibility. The NS model delivers lower pricing errors, more stable parameter estimates, and stronger overall fit, making it a reliable benchmark for routine monitoring. In contrast, the NSS specification provides greater flexibility in capturing complex yield curve shapes, particularly during periods of market stress, but at the cost of higher volatility and weaker pricing performance. Beyond methodological insights, the estimated yield curves offer economically meaningful signals for business conditions in Vietnam, as interest rate dynamics influence firms’ cost of capital, investment decisions, and sectoral performance.
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