Research

From 1994 to 2021, the supply of long-term sovereign debt has increased seven-fold from 2.8 trillion to 18.7 trillion dollars across G10 currency countries. Despite this increase in supply, we show that long-term bond yields have declined over US Treasury auctions. This decline has been strongly integrated across countries and is cumulatively large, 418 basis points for US yields and 536 basis points for G10 yields. These global declines in long term yields are unique to US Treasury auctions and do not occur over foreign sovereign debt auctions, even those with comparable size. We show evidence that global investors’ participation is important for the special role that US Treasury auctions have in revealing persistent and mildly positive shifts in the global demand for long-term bonds.   

Long-term bond yields for G10 currencies are strongly integrated: a single factor can explain 90 percent of the variation in levels and 80 percent in monthly changes. Canonical term structure models attribute this commonality to common global factors, while recent work by Gourinchas, Ray, and Vayanos (2022) and Greenwood, Hanson, Stein, and Sunderam (2023) theoretically argue that quantity flows are important for this integration. We show empirical evidence that integration is stronger during periods of greater Treasury bond issuance. However, we find no evidence of stronger integration during periods of macroeconomic news announcements. Furthermore, we show that global bond funds chase term premium spreads across currencies in a manner that is consistent with integrating long-term yields.