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JOB MARKET PAPER
JOB MARKET PAPER
This paper examines how foreign ownership of local currency sovereign debt impacts the yield co-movement between domestic and global bond markets. Using China’s 2017 bond market liberalization as a case study, I present new evidence showing that increased foreign participation in a country’s sovereign debt enhances the co-movement of its long-term yields with those of global markets. Following the policy change, foreign ownership of local-currency Chinese government bonds nearly doubled as global bond investors shifted investments from developed markets to China. This shift significantly strengthened the co-movement between long-term yields of Chinese government bonds and those of developed markets, particularly the G7 countries, with an increase of 70%.
WORKING PAPER
WORKING PAPER
Treasury Auctions and Long-Term Bond Yields
With Fabricius Somogyi, and Jonathan Wallen
From 1994 to 2021, the supply of long-term sovereign debt increased more than six-fold, from $2.8
trillion to $18.7 trillion, across G10 currency countries. Despite this increase in supply, we show
that long-term bond yields have declined during U.S. Treasury auctions. This decline has been
strongly integrated across countries and is cumulatively large—418 basis points for U.S. yields and
536 basis points for G10 yields. These global declines in long-term yields are unique to U.S.
Treasury auctions and do not occur during foreign sovereign debt auctions, even for those of
comparable size. We provide evidence that global investor participation plays an important role in
the special significance of U.S. Treasury auctions, which reveal persistent and mildly positive
shifts in the global demand for long-term bonds.
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