An Empirical Analysis of the Relationship between UK Treasury Bills and the Term Structure of Certificates of Deposit.

Using principal components analysis, this paper derives a direct measure of movements in the level and slope of the certificate of deposit yield curve. Appealing to the efficient markets view of the term structure of interest rates, evidence is reported which suggests that changes in Treasury Bill yields have a considerable influence over changes in the level of CD yields but only have a small, transitory effect on the slope of the term structure of CDs. Copyright 1995 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research