The Anatomy of the Bond Market Turbulence of 1994

30 Pages Posted: 13 Dec 2005

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Robert N. McCauley

Bank for International Settlements (BIS)

Date Written: May 1996

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.

JEL Classification: G10, G12, G1

Suggested Citation

Borio, Claudio E.V. and McCauley, Robert N., The Anatomy of the Bond Market Turbulence of 1994 (May 1996). BIS Working Paper No. 32. Available at SSRN: https://ssrn.com/abstract=11153 or http://dx.doi.org/10.2139/ssrn.11153

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Robert N. McCauley

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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