Investigating the muti-scaling properties and connectedness of the sovereign bond yields: Hurst exponent and network analysis approach

Abstract

Using daily yield data of 14 sovereign bond markets from emerging and developed economies from July 10, 2000, to July 10, 2022, we examine their scaling properties using generalized Hurst exponent and spectral density analysis and investigate the connectedness based on a network analysis approach. We consider the yields of 2-year and 10-year bond yields to investigate the scaling properties for short- and long-term sovereign bonds. This selection also allows us to examine sovereign bond spreads with respect to the USA. We also use regularized partial correlation network analysis to connect different countries in communities based on yields. We find that the scaling behavior of the bond yields for both terms fits well using the Hurst exponent and spectral analysis confirms this finding. Moreover, we also find that even though bonds in both cohorts show anti-persistent behavior except that of the USA, the developed economies' bond yields are relatively less anti-persistent as compared to those of emerging economies. The networks of both the 2-year and 10-year yields indicate community formation in various countries which provides diversification benefits to the investors. Most of the emerging countries are classified into one community in the long-tenure bonds as well but this concentration is more evident in the short-tenure bonds.