Bond Market Evidence of Time Variation in Exposures to Global Risk Factors and the Role of US Monetary Policy

This paper empirically shows that US monetary policy influences present and future exposures of developed markets' government bond returns to measures of global, systematic risk and thus affects the time variation of returns on these countries' government bonds. This finding illustrates US monetary policy spillovers to foreign assets that serve as financial market benchmarks and are at the centre of recent financial stability regulations. From an asset pricing perspective, the evidence highlights that exchange rate risk and time variation in sensitivities to global bond and exchange rate risk are important to describe time variation in developed markets' government bond returns.