Studies On The Time-varying Correlation Between China's Onshore,Offshore And US Bond Market

In recent years,with the continuous expansion of cross-border RMB settlement scale and the orderly opening of China's capital account,RMB internationalization has made great progress,and RMB assets are increasingly favored by foreign investors.Meanwhile,China's onshore and offshore RMB bond markets are also developing.On the one hand,the opening of "Bond Connect" offers a convenient and effective channel for foreign investors to invest in the onshore RMB bond market.On the other hand,the offshore RMB bond market has grown into a healthy market of growing scale and scope.In this way,the RMB bond market will gradually integrate with the international bond market.The study of the correlation between China's onshore,offshore and US bond market is of great theoretical and practical significance for the further development of the RMB bond market and the promotion of RMB internationalization.This paper uses Granger causality test,variance decomposition and TVP-VAR model to analyze the time-varying correlation between these markets,and then uses DCC-GARCH model to study the time-varying volatility correlation and its influencing factors.It is found that while the offshore RMB bond market is influenced by both China's onshore and US bond markets,the onshore bond market has a bigger impact on it.The result of TVP-VAR model shows the impact from onshore bond market to offshore bond market lasts longer and the degree of mutual impact among the three markets is increasing with the continuous expansion of onshore bond market.When analyzing the result from DCC-GARCH model,we can find that the correlation between these markets is still at low degree.The interest rate spreads and the opening of the onshore bond market will improve the correlation between China's onshore and offshore bond market as well as the correlation between China's offshore and US bond market,other factors such as RMB exchange rate spreads,the dollar index yield have different degrees of impact on the correlation between these bond markets.Finally,based on the research of this paper,suggestions like paying attention to the risks brought by cross-border capital flows through bond market are presented.Also,monetary policies should be formulated prudently and we ought to continue to promote the healthy development of both offshore and onshore bond markets.