Linear-quadratic term structure models for negative euro area yields

- Four factor linear-quadratic models (LQTSM) fit negative Euro yields well.
- As in Euroland, in LQTSM short yields can be negative, but not the longest yields.
- LQTSM outperform four factor quadratic models that permit negative yields.
- Quadratic models that permit negative yields outperform affine Gaussian models.
- Quadratic models that rule out negative yields seem no longer adequate.

Four factor linear-quadratic models (LQTSM) fit negative Euro yields well, as short yields can be negative, but not the longest yields. LQTSM outperform four factor quadratic models that permit negative yields, which in turn outperform affine Gaussian models.