A Roundabout Path in the “Snapback” of Long-term Bond Yields

Xing, Victor (2018): A Roundabout Path in the “Snapback” of Long-term Bond Yields.

Abstract

BIS’s Shin noted that a “snapback” in long-term interest rates represents the biggest risk in the global economy, as a decade of policy-induced yield-chasing not only directly lowered long-term rates but also begot further demand. With term premium decompress amid waning policy support, higher long-term bond yields will induce further duration shedding to threaten risk sentiment. Nevertheless, the "snapback" in yields will likely take a roundabout path as flight-to-quality flows from deleveraging exert transient downward pressure in bond yields.

• Item Type: MPRA Paper
• Language: English
• Keywords: Term premium, monetary policy, fixed income, long-maturity bond yields, financial conditions
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

References

Aldasoro, I., & Ehlers, T. (2018, 9 23). Global liquidity: changing instrument and currency patterns. Retrieved from Bank for International Settlements: https://www.bis.org/publ/qtrpdf/r_qt1809b.htm

Bloomberg. (2018, 10 11). We Are Living in a World with Interconnected Balance Sheets. Retrieved from Bloomberg: https://www.bloomberg.com/news/videos/2018-10-12/we-are-living-in-a-world-with-interconnected-balance-sheets-says-bis-shin-video

Brainard, L. (2017, 7 13). Cross-Border Spillovers of Balance Sheet Normalization. Retrieved from Board of Governors of the Federal Reserve System: https://www.federalreserve.gov/newsevents/speech/brainard20170713a.htm

Chappatta, B. (2018, 10 10). Morgan Stanley Gives Up on Flattening Yield Curve Too Soon. Retrieved from Bloomberg Opinion: https://www.bloomberg.com/amp/view/articles/2018-10-10/morgan-stanley-gives-up-on-flattening-yield-curve-too-soon

Shin, H. (2017, 9 25). Is there a risk of snapback in long-dated yields? Retrieved from Bank for International Settlements: https://www.bis.org/speeches/sp170925.htm

Williams, J. C. (2018, 5 15). The Future Fortunes of R-star: Are They Really Rising? Retrieved from Federal Reserve Bank of San Francisco: https://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2018/may/future-fortunes-r-star-are-they-rising/