Volatility in International Sovereign Bond Markets: The role of government policy responses to the COVID-19 pandemic

Adam Zaremba; Renatas Kizys; David Y Aharon

doi:10.1016/j.frl.2021.102011

Volatility in International Sovereign Bond Markets: The role of government policy responses to the COVID-19 pandemic

Financ Res Lett. 2021 Nov:43:102011. doi: 10.1016/j.frl.2021.102011. Epub 2021 Mar 9.

Authors

Adam Zaremba^{1

2

3}, Renatas Kizys⁴, David Y Aharon⁵

Affiliations

¹ Montpellier Business School, 2300 Avenue des Moulins, 34185 Montpellier cedex 4, France.
² Poznan University of Economics and Business, Institute of Finance, Department of Investment and Financial Markets, al. Niepodległości 10, 61-875 Poznań, Poland.
³ Montpellier Research in Management, University of Montpellier, Montpellier, France.
⁴ University of Southampton, Southampton Business School, Department of Banking and Finance, Room 1013, Building 4, Highfield Campus, Southampton SO17 1BJ, United Kingdom.
⁵ Ono Academic College, Faculty of Business Administration, Tzahal St 104, Kiryat Ono, Israel.

Abstract

Effective government policies may reduce uncertainty in sovereign bond markets. Can policy responses help to curb bond market volatility during the COVID-19 pandemic? To answer this, we examine data from 31 developed and emerging markets during the coronavirus outbreak in 2020. We demonstrate that government interventions substantially reduce local sovereign bond volatility. The effect is mainly driven by economic support policies; the containment and closure regulations and health system interventions play no major role.

Keywords: COVID-19 pandemic; Containment and closure; Coronavirus outbreak; Economic support; Government bond market volatility; Government policy responses; Sovereign bonds.