In quantitive finance,it is often said that yield curve change is explained by three factor, “parallel shift”, “twist” and “butterfly”. Because I found that we can get historical yield curve data from FRB’s web site, I check whether these proverbial facts are correct or not.Yield curve data can be downloaded to click “Go to download” and “Download File” button. Default data format is csv. If you would like to get data another format, you should click “Build package” button to change format.
I assume that downloaded data is located at “C:\tmp”
Now,I have gotten yield curve change data.
Result image is shown like below
These result imply that Each three principal component correspond to “parallel shift”, “twist” and “butterfly”.
Cumulative Proportion are shown by “summary” function.
As a result, yield cuve change can be explained by three principal component.