Template-Type: ReDIF-Paper 1.0
Author-Name: Tobias Adrian
Author-X-Name-First: Tobias
Author-X-Name-Last: Adrian
Author-Name: Gaston Gelos
Author-X-Name-First: Gaston
Author-X-Name-Last: Gelos
Author-Name: Nora Lamersdorf
Author-X-Name-First: Nora
Author-X-Name-Last: Lamersdorf
Author-Name: Emanuel Moench
Author-X-Name-First: Emanuel
Author-X-Name-Last: Moench
Title: The asymmetric and persistent effects of Fed policy on global bond yields
Abstract: We document that U.S. monetary policy shocks have highly persistent but asymmetric effects on U.S. Treasury and global bond yields, with a clear break around the Great Financial Crisis (GFC). Prior to the GFC, tightening shocks used to lead to a pronounced hump-shaped increase of Treasury yields across maturities. Yields used to respond little to easing shocks as term premiums would rise strongly, offsetting the associated decline of expected policy rates. Since the GFC, term premiums have been declining persistently following both tightening and easing shocks. As a result, post-GFC tightening shocks only have transitory positive effects on yields, which reverse later. The response of advanced-economy and emerging market sovereign yields essentially mimics the pattern observed for Treasury yields. Consistent with recent work by Kekre et al. (2022) we find that changes in the duration of primary dealer Treasury portfolios pre- and post-GFC are highly informative about the sign of the term premium response to policy shocks, but cannot explain the full picture. The observed puzzling persistence of returns is likely to stem at least in part from slow and persistent mutual fund flows following monetary policy surprises.
Creation-Date: 2024-07
File-URL: https://www.bis.org/publ/work1195.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1195.htm
File-Format: text/html
Number: 1195
Keywords:spillovers, monetary policy, yield curve, capital flows
Classification-JEL: F32, E43, E52, G12, G15
Handle: RePEc:bis:biswps:1195