| Résumé | The primary aim of this work is to study the sensitivity of Luxembourg bond funds to interest rate movements. For this purpose, the dataset compiled at the Banque centrale du
Luxembourg (BCL) since December 2008 is used to analyse the balance sheet composition of Luxembourg bond funds and to measure the interest rate exposure of their
bond portfolio. An econometric model with time-varying parameters is then estimated on monthly data over the sample 2008:1-2014:6 to analyse the evolution of the interest rate
sensitivity of the Net Asset Value (NAV) of Luxembourg bond funds. The main findings of the study are the following. At the end of the period under review, Luxembourg bond
funds have lengthened the residual maturity and the duration of their portfolio, which have returned to a similar level as the one observed in December 2008. This evolution,
which points toward a search-for-yield behaviour in a low interest rate environment, suggests that Luxembourg bond funds have recently become more sensitive to fixedincome
market developments. According to the level of the parameter estimate obtained with the Kalman filter at the end of the sample, a 100 basis points rise in long term
interest rates on the sovereign bond markets associated with an additional 100 basis points rise in the risk premium on the high-yield bond markets would materialise
approximately into a 10% decrease in the NAV of Luxembourg bond funds.
Keywords: Bond funds, risk analysis, security-by-security reporting, Kalman filter.
JEL classification: C32, C81, F30, G11, G23. |
