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International Yield Spillovers

Published online by Cambridge University Press:  14 December 2022

Don H. Kim  and
Marcelo Ochoa Open the ORCID record for Marcelo Ochoa [Opens in a new window]
Don H. Kim
Affiliation:
Federal Reserve Board Division of Monetary Affairs don.h.kim@frb.gov
Marcelo Ochoa*
Affiliation:
Federal Reserve Board Division of Monetary Affairs
*
marcelo.ochoa@frb.gov (corresponding author)
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Abstract

This article investigates spillovers from foreign economies to the U.S. through changes in long-term Treasury yields. We document a decline in the contribution of U.S. domestic news to the variance of long-term Treasury yields and an increased importance of overnight yield changes, a proxy for foreign shocks’ contribution to U.S. yields. A model that identifies U.S., Euro area, and U.K. shocks that move global yields suggests that foreign shocks account for at least 20% of the daily variation in long-term U.S. yields in recent years. We also document the predictability of long-term U.S. yields by the U.S.–foreign yield spread.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 8 , December 2023 , pp. 3613 - 3643
Creative Commons
This is a work of the US Government and is not subject to copyright protection within the United States. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Copyright
© Federal Reserve Board of Governors, 2022

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Footnotes

We thank an anonymous referee and Hendrik Bessembinder (the editor) for helpful comments and suggestions. We are grateful for helpful comments from Luis Ceballos, Michiel De Pooter, Eric Engstrom, John Rogers, Min Wei, Jonathan Wright, and Emre Yoldas as well as seminar participants at the Federal Reserve Board, and the Eastern Finance Association 2021 Annual Meeting. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.

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