Term Spreads and the COVID-19 Pandemic: Evidence from International Sovereign Bond Markets

Abstract

We explore the impact of the COVID-19 pandemic on the term structure of interest rates. Using data from developed and emerging countries, we demonstrate that the expansion of the disease significantly affects sovereign bond markets. The growth of confirmed cases significantly widens the term spreads of government bonds. The effect is independent of government policy and monetary responses to COVID-19 and robust to many considerations.

Keywords: COVID-19 pandemic, coronavirus, policy responses, government bonds, sovereign bond, term spread, term structure, interest rates

JEL Classification: G01, G12, G15, G18, E43