Realized Jump Risks in the U.S. TB and TIPS Markets

Abstract

This paper discusses the jump risks for the Treasury bond futures, Treasury bonds (TB), and individual Treasury inflation-protected securities (TIPS). Using the 1-minute high- frequency data, the jump variations contribute more than half to the total variations during January 2003 to May 2014. During the financial crisis, the jump frequency and absolute jump amplitude are higher than normality. Interestingly, in the higher volatility status, the jump frequency is more than the lower volatility state. But, the jump amplitude in the higher volatility state is lower than the lower volatility state, it may be caused by persistent trading for the investors` anticipations. Moreover, we also use the daily rate of return for each TB and TIPS to investigate systematic jump risks. On average, the market participants who hold the long-term TB and TIPS face the systematic jump risks. The investors and the issuers must require the jump risk premium against the mispricing.