Sovereign Bond Return Behavior to News Reports in the COVID–19 Crisis

This study examines the behavior of sovereign bonds to COVID-19 related news in 24 countries most affected by the COVID-19 pandemic. The study applies a continuous Hidden Markov Model (HMM) to analyze the regime shifting behavior of sovereign bonds to the news. The results show that the COVID-19 related news has a significant regime shift impact on the bond returns when news arrives in the market. The bond returns remain in a volatile state for a longer duration with lower returns. The results indicate that the bond returns are sensitive to the COVID–19 related news, and investors need to consider this information before making investment decisions. The results have practical implications for debt fund managers and policymakers to understand that sovereign bonds may lose the safe-haven asset properties during the crisis.