The term structures of global yields

Sovereign bond yields in more than 20 developed and emerging market economies are decomposed into expected short rates and term premia using the Adrian, Crump and Moench (2013) approach. I document that (i) term premia account for large fractions of global bond yield variation; (ii) the co-movement of sovereign bond yields is, to a large extent, driven by the term premium components of sovereign yields, especially in recent years; (iii) connectedness and tail dependence between international bond markets are primarily driven by the term premium components of global yields; and (iv) global bond yields strongly respond to US target rate shocks, albeit with considerable delay. This response is primarily driven by a reassessment of global policy rate expectations.