The first three factors resulting from a principal components analysis of term structure data are in the literature typically interpreted as driving the level, slope and curvature of the term structure. Using slight generalisations of theorems from total positivity, we present sufficient conditions under which level, slope and curvature are present. These conditions have the nice interpretation of restricting the level, slope and curvature of the correlation surface. It is proven that the Schoenmakers-Coffey correlation matrix also brings along such factors. Finally, we formulate and corroborate our conjecture that the order present in correlation matrices causes slope.

Schoenmakers-Coffey matrix, correlation matrix, oscillation matrix, principal components analysis, total positivity
Econometric Modeling: General (jel C50), Mathematical Methods and Programming: General (jel C60), General Financial Markets: General (jel G10)
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Lord, R, & Pelsser, A.A.J. (2005). Level-Slope-Curvature - Fact or Artefact? (No. 0929-0834). Tinbergen Institute Discussion Paper Series. Retrieved from