FINANCIAL MELTDOWN AND BOND PRICES: AN EMPIRICAL ANALYSIS

Yields, over the past few years, have been volatile due primarily to a combination of two factors; the reaction of Federal Reserve (FED) to the events by changing the interest rates and the repricing of risks by investors. These factors have a key impact on determination of bond pricing; this study uses several measurements of bond pricing estimations to illustrate the effect of yield volatility on the pricing of a 10-year US Treasury note issued on February 15, 2007, to 26 February 2010. Even though the analytical evidence shows the existence of volatility affecting the estimated pricing of the observed 10-year US Treasury note, the empirical evidence indicate a possible random walk model.