Channels of US monetary policy spillovers to international bond markets

Albagli, Elías; Ceballos, Luis; Claro, Sebastián; Romero, Damián

doi:10.1016/j.jfineco.2019.04.007

Cited by 128 publications

(78 citation statements)

References 42 publications

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“…Their key finding is that U.S. monetary policy spillovers to longer term foreign bond yields have increased substantially after the global financial crisis. The main difference with our paper is that Albagli et al (2018) analyze sovereign bonds denominated in local currencies, whereas we focus on dollar-denominated sovereign bonds. Importantly, our U.S. monetary policy surprises are much better identified because we use intraday data to compute changes in short-term U.S. Treasury yields in narrow windows bracketing FOMC announcements.…”

Section: Related Literaturementioning

confidence: 99%

“…In a recent paper, Albagli et al. () document significant U.S. monetary policy spillovers to international bond markets. The authors identify U.S. monetary policy surprises using changes in short‐term U.S. Treasury yields within 2 days of FOMC meetings and trace the effects of those changes on foreign bond yields using panel regressions.…”

Section: Related Literaturementioning

confidence: 99%

“…The key takeaway of these two papers is that U.S. unconventional monetary policy measures induced a significant portfolio reallocation among investors and led to a notable repricing of risk in global financial markets. 5 In a recent paper, Albagli et al (2018) document significant U.S. monetary policy spillovers to international bond markets. The authors identify U.S. monetary policy surprises using changes in short-term U.S. Treasury yields within 2 days of FOMC meetings and trace the effects of those changes on foreign bond yields using panel regressions.…”

Section: Related Literaturementioning

confidence: 99%

“…However, as documented by Albagli et al. (), while U.S. monetary policy news is not always the only event moving U.S. Treasury yields on FOMC announcement days, this is the case much more often than not—the overlap frequency between FOMC meetings and all other major country events is only about 7% at the daily frequency. Our measure of U.S. monetary policy surprises is based on yield changes over the 30‐ or 60‐minute window bracketing FOMC announcements and thus is even less affected by such news.…”

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confidence: 91%

“…It is worth noting that Albagli et al. () find that U.S. monetary policy spillovers to long‐term foreign yields have increased substantially after the global financial crisis. However, they study sovereign bonds denominated in local currencies, and their evidence evidence is thus consistent with the standard exchange rate channel, according to which foreign central banks face a trade‐off between narrowing policy rate differentials, or experiencing currency movements against the U.S. dollar.…”

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confidence: 99%

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U.S. Monetary Policy and International Bond Markets

Gilchrist

Yue

Zakrajšek

2019

J of Money Credit Banking

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This paper analyzes how U.S. monetary policy affects the pricing of dollar‐denominated sovereign debt. We document that yields on dollar‐denominated sovereign bonds are highly responsive to U.S. monetary policy surprises—during both the conventional and unconventional policy regimes—and that the passthrough of unconventional policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition, a conventional U.S. monetary easing (tightening) leads to a significant narrowing (widening) of credit spreads on sovereign bonds issued by countries with a speculative‐grade credit rating but has no effect on the corresponding weighted average of bilateral exchange rates for a basket of currencies from the same set of risky countries; this indicates that an unanticipated tightening of U.S. monetary policy widens credit spreads on risky sovereign debt directly through the financial channel, as opposed to indirectly through the exchange rate channel. During the unconventional policy regime, yields on both investment‐ and speculative‐grade sovereign bonds move one‐to‐one with policy‐induced fluctuations in yields on comparable U.S. Treasuries. We also examine whether the response of sovereign credit spreads to US monetary policy differs between policy easings and tightenings and find no evidence of such asymmetry.

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Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

mentioning

confidence: 91%

mentioning

confidence: 99%

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U.S. Monetary Policy and International Bond Markets

Gilchrist

Yue

Zakrajšek

2019

J of Money Credit Banking

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Emerging markets financial sector debt: A Markov‐switching study of interest rate sensitivity

Gubareva

Keddad

2020

Int. J Fin Econ

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We provide an empirical study on the sensitivity of capital gains of emerging market financial sector debts to the U.S. Treasury market in a three‐state Markov‐switching framework. Specifically, we model the capital gains change in a debt portfolio consisting of emerging market bonds as a linear regression of the capital gains change in a portfolio consisting of U.S. Treasury bonds in which the regression coefficients are allowed to switch between three regimes. Our analysis spans the period 2003–2016. We identify three regimes corresponding to positive sensitivity, insensitivity and negative sensitivity and provide economic explanations of our findings. We find that negative sensitivity regimes mostly occurred during the financial crisis. Our research advances understanding of the financial economics that governs the interdependence of interest rate risk and credit risk. By reassessing interest rate risk management through the prism of the downside risk hedge, our results shed light on how financial institutions may better withstand adverse financial conditions.

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