Which are the most important macroeconomic indicators for the evolution of Swaps?

I'm going to talk about my thesis because it's related. To sum up, I studied the relationship of the 5 year US Interest Rate Swap with a range of macroeconomic indicators.(Non Farm Payrolls, ISM PMI, CPI, GDP, Unemployment, Retail Sales, Commercial Balance and Consumer Confidence ) I did an statistical analysis, factor analysis in order to know which indicators explained better the evolution of the US IRS. The purposes of this project were:
           -Know better the credit market.
           -Identify the most important macroeconomic indicators and measure its mathematical meaning
           -Know in which occasions I should hedge the portfolio.
           -Identify investment opportunities.

Firstly I talked about the how the crisis was originated and its repercussion to other assets. Then I talked about the US IRS evolution. In the next part I explained the macroeconomic indicators and its evolution.

 5Y US IRS. Source: Bloomberg

As we can see in the chart the yield of the 5year US IRS began to fall down. Signals of the precedent crisis. In this period of time the yields of the IRS' were affected by the policy of the FED.

5Y US IRS. Source: Bloomberg

 

This chart is more or less the same but the period is shorter, because it´s the period I used to do my research. We can see the improvement of the US economy from 2013.

Factor Analysis

Statistics
	Mean	Standard Deviation	N
Unemployment	8,1655%	1,11226%	55
CPI	2,0327%	,80991%	55
GDP	3,8927%	,76154%	55
Retail Sales	,4345%	,60682%	55
Commercial Balance	,4869%	8,39500%	55
ISM PMI	,3186%	2,19658%	55
Consumer Confidence	1,4162%	10,15852%	55
Non Farm Payrolls	-15,6283%	114,71298%	55
Personal Income change	,3600%	,88936%	55

Source: IBM SPSS

Table correlations between the different indicators. Source: IBM SPSS

Comunalities
	Initial	Extration
Unemployment	1,000	0,794
CPI	1,000	0,754
GDP	1,000	0,772
Retail Sales	1,000	0,750
Commercial Balance	1,000	0,726
ISM PMI	1,000	0,816
Consumer Confidence	1,000	0,606
Non Farm Payrolls	1,000	0,841
Personal Income change	1,000	0,740
Extraction Method: principal components

Table: Comunalities of the macroeconomic indicators

Table: Explained total variance of the US IRS by the different indicators


Conclusion

The 5year US IRS has been affected by the FED interventions. It was a difficult period to try to predict which of the macroeconomic indicators used in my research was better. The moves are closely linked with the movements of the FED. Having that in mind, you can think that all aspects are interrelated. After my study I can affirm that the more important ones are the following:
          -Non Farm Payrolls
          -ISM PMI
          -Unemployment
          -CPI
          -GDP

5Y US IRS with the FED interventions. Source: own elaboration with Bloomberg

I would like to apply this kind of research to different assets. I hope you have enjoyed. If you have doubts, leave a comment.

#Swaps  #interestrates  #US  #FED  #macroeconomics