We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond. A pseudo-trading strategy based on relative value generates higher...

We build a small-scale representation of an economy in which the short rate, inflation and output exhibit unobserved secular and cyclical components that both drive bond yields. We impose the economic restriction that expected bond returns are purely cyclical so that their variance does not...

Cochrane and Piazzesi (2005) show that (i) lagged forward rates help predict bond returns and that (ii) modern Markovian dynamic term structure models (DTSMs) cannot match the evidence. We develop the family of Conditional Mean DTSMs where the dynamics depend on current yields and their history...