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The term structures of global yields

In: Asia-Pacific fixed income markets: evolving structure, participation and pricing

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  • Emanuel Mönch

Abstract

Sovereign bond yields in more than 20 developed and emerging market economies are decomposed into expected short rates and term premia using the Adrian, Crump and Moench (2013) approach. I document that (i) term premia account for large fractions of global bond yield variation; (ii) the co-movement of sovereign bond yields is, to a large extent, driven by the term premium components of sovereign yields, especially in recent years; (iii) connectedness and tail dependence between international bond markets are primarily driven by the term premium components of global yields; and (iv) global bond yields strongly respond to US target rate shocks, albeit with considerable delay. This response is primarily driven by a reassessment of global policy rate expectations.

Suggested Citation

  • Emanuel Mönch, 2019. "The term structures of global yields," BIS Papers chapters, in: Bank for International Settlements (ed.), Asia-Pacific fixed income markets: evolving structure, participation and pricing, volume 102, pages 3-15, Bank for International Settlements.
    • Handle: RePEc:bis:bisbpc:102-02
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    References listed on IDEAS

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    1. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    2. Adrian, Tobias & Crump, Richard K. & Moench, Emanuel, 2013. "Pricing the term structure with linear regressions," Journal of Financial Economics, Elsevier, vol. 110(1), pages 110-138.
    3. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    4. Scott Joslin & Kenneth J. Singleton & Haoxiang Zhu, 2011. "A New Perspective on Gaussian Dynamic Term Structure Models," The Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 926-970.
    5. Jonathan H. Wright, 2011. "Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset," American Economic Review, American Economic Association, vol. 101(4), pages 1514-1534, June.
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