This paper examines the sharp rise in bond yield volatility across the major bond markets in 1994. The analysis covers thirteen industrialised countries and is largely based on OTC data for implied bond yield volatility. We conclude that the market's own dynamics seem to provide a stronger explanation than variations in market participants' apprehensions about economic fundamentals. We identify three market dynamics: downward markets increase volatility; volatility spills over from certain markets onto others; and it can rise in the wake of substantial withdrawals of foreign investments. We find more limited evidence that monetary or fiscal policies accounted for the rise in volatility, at least by our measures. Moreover, changing expectations about growth and inflation, while perhaps at work in particular countries, do not offer much of a general explanation.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number
32.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: