THE SOVEREIGN BOND MARKETS RETURN AND VOLATILITY SPILLOVERS

The aim of this paper is to apply the spillover index methodology developed by Diebold and Yilmaz (2009, 2012) to investigate the role individual sovereign bond markets play in international sovereign bond market volatility spillovers. Daily data for 19 developed and developing countries from four continents is used in order to estimate fixed and time-varying return and volatility spillovers index for sovereign bond markets during post-Lehman Brothers bankruptcy period. In addition, we decompose the overall sovereign bond markets return and volatility spillover index into specific country-to-country spillovers to detect individual countries that explain the majority of detected spillovers. We find that innovations to the US sovereign bond market have the biggest influence on the return and volatility variance in other sovereign bond markets across the globe. In addition, spillovers are more intensive for the sovereign bond returns than for volatilities in the observed period. European debt crisis seem to be the cause of surges in return and volatility spillover in the observed period