Dynamic correlations in bond markets between US and emerging countries

ABSTRACT

We adopt the wavelet method to provide better measures of the dynamic correlations between the US and major emerging government bond yields, revealing the structural changes from a three-dimensional analysis. The study concludes two wavelet-based empirical results. First, there are significant positive correlations between the underlying three country pairs of government bonds, exhibiting the synchronicity in time-frequency basis. Second, US government bonds lead every emerging country government bond over the time scales. It shows that US government bonds, on behalf of the developed government bond markets, have an important role in leading and guiding emerging government bonds. The findings remind international investors of the reduced benefits of diversification on global bond investment portfolios and paying greater attention to the influences of US government bond market when managing investment portfolios.

KEYWORDS:

• Government bond markets
• Granger causality
• nonlinearity
• dynamic correlations
• wavelet analysis

JEL CLASSIFICATION:

• E44
• F42
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ US10YT represents the monthly 10-year government bond yield in the United States, BR10YT in Brazil, and so on.