Global Economic Policy Uncertainty and Government Bond Market Volatility

This study explores the effect of economic policy uncertainty (EPU) on domestic government bond market volatility in a multi-country panel setting. Our results confirm that EPU contributes significantly to bond market volatility in the short term. In particular, factors associated with global EPU have a stronger impact on domestic bond yield volatility. Moreover, our additional test found that the U.S. factor dominates global EPU. Finally, in the first year of the COVID-19 pandemic, the impact of EPU on national bond markets has significantly increased compared to the pre-COVID-19 period. Our findings highlight the important role of EPU concerning risks in the bond market and have vital implications for policy-makers and bond investors.