Dynamic co-movement and correlations in fixed income markets: Evidence from selected emerging market bond yields

Abstract

This paper extends research concerned with the evaluation of co-movement and correlations in international fixed income markets by examining dynamic linkages in three emerging bond market yields along with the US. The empirical results suggest that daily bond yields for these markets are not linked, which implies significant long-run risk diversification. In addition, dynamic correlations between emerging market bond yields appear to be more sensitive to negative news rather than to positive news, albeit at low magnitudes. Furthermore, accounting for time-variation is mostly beneficial and leads in most cases to an improvement in the risk-reward ratio relative to measures which do not consider time-variation.