Bond Market Spillover Network During the Global Pandemic: What We Learn from Asean-4 Markets

During decade of market development, the Association of Southeast Asian Nations (ASEAN) financial markets seem to be increasingly integrated into the regional and global markets. The aim of this study is to explore and measure the strength and direction of bond market connectedness between ASEAN-4 and major global and regional bond markets and identify various factors affecting the spillover effects. This study derives a risk spillover measure based on the characteristics of static and dynamic spillover models and empirically examines its role in receiving or sending shocks based on different information spillover or contagion channels. In particular, the objective of this research is to empirically investigate the connectedness dynamics using government bond yields in ASEAN markets (Thailand, Malaysia, Indonesia, and the Philippines) and major regional markets (China, Korea and Japan) and major global markets (the US, UK, and EU). Specifically, we aim to examine risk spillover in ASEAN bond markets and identify the potential economic and financial fundamentals driving the uncertainty spillovers in ASEAN-4 bond markets. We find complex intra-group and moderate inter-group return and volatility connectedness among ASEAN-4 with regional and global markets at different horizon.