Impact of macroeconomic data-releases on short-term swap rates

Sammanfattning

This thesis explores how key macroeconomic news releases influence daily movements of the SEK forward swap rate curve. Understanding these responses has the potential for more effective risk management, asset pricing, and analysing how monetary policy affects financial markets. To capture the known features of financial time series the study uses an ARMAX-EGARCH model with Student’s t-distributed errors. This allows for a realistic representation of swap rate dynamics while quantifying the impact of exogenous macroeconomic surprises. An iterative model selection process, guided by information criteria and diagnostic testing, identified an ARMAX(1,2)-EGARCH(1,1)-t specification as the most suitable univariate model. The results show a strong and statistically significant effect of inflation surprises and repo rate surprises, across all three tenors. In addition, daily percentage changes in oil prices exhibit a positive impact, with sensitivity increasing at longer maturities. The first lag of oil price changes also has a significant or near-significant effect. Other macroeconomic indicators, such as GDP surprises and various PMI metrics, were largely insignificant after accounting for inflation, repo rate and oil dynamics or suffered due to lack of sufficient data. The EGARCH-t component effectively captures both the persistence and heavy-tailed behaviour of swap rate volatility. The model performs well for all tenors with the variables available, passing key diagnostic tests like the Ljung-Box test for residual autocorrelation; however, it lacks strong explanatory power likely due to the small amount of regressors. Overall, the findings highlight the role of inflation, repo rate, and oil price news in driving daily swap rate movements and highlight the importance of using advanced time series models that reflect the true characteristics of financial data.