Impute the Baa Spread using LQD, IEF and inverted 10s.

Baa-spread-impute.R

##
## Unfortunately, FRED no longer will be providing a whole bunch of interest rate series, principally Moody's.
## I use the Baa spread as the bedrock of my analysis, and although I can get a colleague to export the data from a BB terminal,
## I really needed to create a proxy so I can get data more quickly than that.
##
## The idea here is to impute the Baa spread from market inputs that we still have access to: 10s30s (because Baa spread has a 
## duration spread embedded in it), the IEF/LQD ratio, and inverted 10s, in order to correct for convexity.
##
## The result is pretty decent: from 1986-2016, we get an R^2 of 0.9, RMSE of 0.26. I'm sure it could be improved upon, so let me know
## if you have any other ideas.
## 

library(quantmod)

imputeAndMergeBaaSpread = function()
{
  getSymbols( c("TLT", "IEF"), from="1950-01-01" );
  fred( c("DGS10", "DGS30", "DBAA") );

  imputedBaaSpread = -10.45630 + 13.25765*(IEF[,6]/LQD[,6]) + 0.01196*(DGS30-DGS10) + 1.67127*(1/DGS10)

  a = merge(DBAA - DGS10, imputedBaaSpread)
  names(a) = c("DBAA", "imputedBaaSpread")
  a$s = a$imputedBaaSpread
  a$s[is.na(a$s)] = a$DBAA[is.na(a$s)]
  return(a$s)
}