Bond Market Integration

Using government bond market data for the US, UK, Canada, Australia, Germany, France, Switzerland, Netherlands, and Japan, I investigate the integration and efficiency of international bond markets from 1985 to 2005. The correlation analysis shows considerable diversification opportunities for short-term investors. Co-integration tests indicate that several of the markets share co-integrating vectors, increasing the possibilities of using other endogenous bond markets to better predict movements in a particular market. My results are in sharp contrast to the findings of earlier researchers for major world bond markets in the 1980s, who find that the co-integration level among these markets were low. Since my sample period ranges from mid 1980s to mid 2000s, it suggests that these bond markets have become more and more co-integrated from 1990s.

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