Spillover across sovereign bond markets between the US and ASEAN4 economies

This study employs the VAR-MGARCH model to investigate the spillover across the sovereign bond markets between the US and ASEAN4 economies. The empirical results confirm the unidirectional spillover in bond return from the US to ASEAN4, while there is a bidirectional influence in volatility. Additionally, dynamic conditional correlation (DCC) analysis is employed to depict the changing correlation in volatility. The empirical results also show that the yields of ASEAN4 bonds increase with emerging market risks, and the exchange rate can act as a buffer to reduce spillover. Given that ASEAN4 governments have issued a large number of government bonds to finance their large fiscal spending during the ongoing COVID-19 pandemic, the return and volatility spillovers from the US to ASEAN4 could be important factors to consider when the US unwinds its unconventional monetary policy and normalizes its interest rates in the medium to long term.