PCA on Bond Yields

[okmijn]

I am asked to perform a principal component analysis on the yield and forward rate for bonds. I am wondering what does this exactly tell me, in particular how should I interpret my values of eigenvector and eigenvalues?

 

[Ken Abbott]

The eigenvalues give relative weights to the orthogonal dimension-reduced components of the covariance structure. I posted an introductory paper on this topic in the recommended readings for risk section of this blog.