Research

Abstract

Using historical and high-frequency data for 20 advanced economies, I show that global risk-free rate models capture the secular rise in sovereign yield comovement over the postwar era, but their explanatory power breaks down at long maturities after the Global Financial Crisis. I address this challenge by decomposing sovereign yields into risk-free rates, default spreads, and convenience yields, each with global and local components. The risk-free component remains the dominant global force, while global credit risk emerges as the missing factor behind post-crisis long-rate comovement. Its role is strongest for stressed sovereigns, yet it is only weakly linked to broad U.S. financial indicators, suggesting that global sovereign credit conditions are not simply a reflection of U.S. factors. Convenience yields are also important determinants of yield variation at the country level, but not comovement across countries. Finally, I document a striking erosion in safety premia across the maturity spectrum: convenience yields fall first in the United States and then more broadly across countries after 2024.