US Monetary Policy and International Bond Markets
34 Pages Posted: 18 Feb 2018
Date Written: February 5, 2018
This paper uses high-frequency data to analyze the effects of US monetary policy -- during the conventional and unconventional policy regimes -- on foreign government bonds markets in advanced and emerging market economies. The results indicate that an expansionary US monetary policy steepens the foreign yield curve -- denominated in local currency -- during a conventional US monetary policy regime and flattens the foreign yield curve during an unconventional policy regime. The pass-through of unconventional US monetary policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition a conventional US monetary easing leads to a significant narrowing of the credit spreads on dollar-denominated sovereign bonds that are issued by countries with a speculative-grade sovereign credit rating. However, during the unconventional policy regime, yields on speculative-grade sovereign debt denominated in dollars move one-to-one with yields on comparable-maturity US Treasury securities.
Keywords: Conventional and Unconventional US Monetary Policy, Financial Spillovers, Sovereign Yields and Credit Spreads
JEL Classification: E4, E5, F3
Suggested Citation: Suggested Citation