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The anatomy of the bond market turbulence of 1994

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  • Claudio E. V. Borio
  • Robert N. McCauley

Abstract

This paper examines the sharp rise in bond yield volatility across the major bond markets in 1994. The analysis covers thirteen industrialised countries and is largely based on OTC data for implied bond yield volatility. We conclude that the market's own dynamics seem to provide a stronger explanation than variations in market participants' apprehensions about economic fundamentals. We identify three market dynamics: downward markets increase volatility; volatility spills over from certain markets onto others; and it can rise in the wake of substantial withdrawals of foreign investments. We find more limited evidence that monetary or fiscal policies accounted for the rise in volatility, at least by our measures. Moreover, changing expectations about growth and inflation, while perhaps at work in particular countries, do not offer much of a general explanation.

Suggested Citation

  • Claudio E. V. Borio & Robert N. McCauley, 1995. "The anatomy of the bond market turbulence of 1994," BIS Working Papers 32, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:32
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    1. Giovannini, Alberto & Piga, Gustavo, 1992. "Understanding the High Interest Rates on Italian Government Securities," CEPR Discussion Papers 720, C.E.P.R. Discussion Papers.
    2. Hentschel, Ludger, 1995. "All in the family Nesting symmetric and asymmetric GARCH models," Journal of Financial Economics, Elsevier, vol. 39(1), pages 71-104, September.
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    5. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    6. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
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    Cited by:

    1. J. Boeckx & N. Cordemans & M. Dossche, 2013. "Causes and implications of the low level of the risk-free interest rate," Economic Review, National Bank of Belgium, issue ii, pages 63-88, September.
    2. Ábel, István, 2015. "A monetáris politika globális tendenciái és a stabilitási kockázatok [Financial stability concerns and global exposure of monetary policy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 284-304.
    3. Semyon Malamud & Andreas Schrimpf, 2016. "Intermediation Markups and Monetary Policy Passthrough," Swiss Finance Institute Research Paper Series 16-75, Swiss Finance Institute.
    4. Robert N. McCauley, 1997. "The euro and the dollar," BIS Working Papers 50, Bank for International Settlements.
    5. Azis Iwan J. & Mitra Sabyasachi & Baluga Anthony, 2013. "Global Shock and Regional Spillovers," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 19(2), pages 183-211, August.
    6. Kevin L Kliesen, 2023. "A Comparison of Fed "Tightening" Episodes since the 1980s," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 423-450, August.
    7. repec:grm:ecoyun:201704 is not listed on IDEAS
    8. Michel Aglietta & Virginie Coudert, 2016. "Trump and the Dollar in the Refection of History," Working Papers hal-01671414, HAL.

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