Empirical Research Linkage Between Global Government Bond Markets

After the Central Economic Working Conference witch held on15th December2012, WEI Jia’ning, vice-minister of Macroeconomic Research Department Under the State Council Development Research Center confirmed that the Euro crisis, the America debt crisis and Japan’s possible debt crisis were the top three international risks for China’s economic development. The European sovereign debt crisis that burst in December of2009has been increasingly fierce, and it pervaded from Greece to PiiGS and then to German, France and other European countries. In crisis period, people care more about whether the crisis will spread across bond market than across stock market. And this is because issuing bond is the main way for government debiting, thus the government bond market is the main signal measuring a country’s debt crisis. And as the developing of international financial integration, bond market connecting for international financial market communication has been incredibly important. So this paper mainly discussed the following questions:what is the situation of the co-movement of international market? And whether the European debt crisis will spread to China through international bond market?This article selects the government bond market yields data of China, US. Japan. UK, France, Germany, PiiGS and Euro zone from December8th.2009to August31st,2012, Combining with the closing sequence, using Granger causality test, VAR model, impulse response analysis, variance decomposition and GARCH model, analyzing the international government bond market’s co-movement during the European debt crisis.The empirical research result shows that:(1) As most countries’ creditor country, China bond market granger cause all the other bond markets’yield change but German and Japan. China government bond market is independent and it almost doesn’t affected by the international government bond markets.(2) As the dominant country of Euro zone, German and France government bond market have different performance:German bond market is more stable, and it has an obvious co-movement with UK, France and US markets. France government bond market has an obvious co-movement with all the other countries except China. (3) The results show that the US and UK bond market has a violent co-movement with the European countries, and the US government bond market has a high fragility.(4) There exists more obvious and longer co-movement among the PiiGS’market. Among them, Greece market act as a signal in the European debt crisis, and it is the most fragile one; it gets the strongest and longest influence from the international government market.(5) There exists obvious fluctuation spillover effect between the global government bond markets during the European debt crisis period. The European government bond market has un-directionally spillover effect to all the other government bond markets. And fluctuation spillover effect is also exist in China and Japan to the US and UK government bond market un-directionally.