Modeling the Bond Market as a First Order Lag
Dynamics of U.S. Treasury Yields as a First-Order Lag System under Macroeconomic Shocks Introduction U.S. Treasury bonds across the maturity spectrum (from short-term bills to long-term bonds) exhibit distinct dynamic responses to macroeconomic events. When a clearly timestamped event occurs – such as a tariff announcement, a fiscal policy change, a central bank interest rate decision, or a major geopolitical action – bond yields typically move as the market processes the new information ( Yield curve - Wikipedia ). Rather than changing instantaneously to a new equilibrium, yields often adjust with a lag : an initial jump or dip is followed by a gradual approach toward a new level or a reversion back to the prior trend. This behavior suggests that the bond market might be viewed through the lens of control theory , treating yields as the output of a system responding over time to an input shock. In particular, an intriguing question is whether Treasury yields can be modeled as firs...
