Interaction and Integration among Asia Pacific Bond Markets

Abstract

This study investigated the relationship among various bond rates of different maturities across five countries in the Asia Pacific region. In examining the time series behavior of these bond rates, unit root tests and cointegration tests were applied to determine the order of integration and to test for linkage and interaction among the interest rates of different maturities in those countries. The empirical findings revealed that most interest rates examined exhibit a single unit root with the exception of interest rates in Malaysia, which are stationary, and the interest rates in the countries in the region contain a unit root. In addition, evidence of cointegration among the various interest rates in those countries can be found from our research. The one-month interest rates series can fully represent the integration of bonds markets among Asia Pacific countries. Meanwhile, based on the error coorection models, Asia Pacific bond markets seem fully segmented.