Is there excess comovement of bond yields between countries?

by Gregory Sutton

Working Papers No 44
July 1997

This paper examines the issues of excess volatility and excess comovement of interest rates among global bond markets. The base model of interest rate behaviour is the expectations theory of the term structure. The empirical evidence presented in the paper indicates that ten-year government bond yields in five major markets - the United States, Japan, Germany, the United Kingdom and Canada - have in the past displayed both excess volatility and excess comovement relative to the base model. This suggests that term premia at the long end of the term structure are both time-varying and positively correlated across markets.