The Impact of Oil Price Shocks on U.S. Bond Market Returns
42 Pages Posted: 11 Apr 2014 Last revised: 14 Apr 2014
Date Written: April 1, 2014
This paper examines the effect of the demand and supply shocks driving the global crude oil market on aggregate U.S. bond index real returns. A positive oil market-specific demand shock is associated with significant decreases in aggregate bond index real returns for 8 months following the shock. A positive innovation in aggregate demand has a negative effect on real bond return that is statistically significant and becomes more adverse over 24 months. Structural shocks driving the global oil market jointly account for 27.1% of the variation in real bond returns at 24 month horizon. A spillover index from rolling SVAR models is used to identify the interdependence between the oil market and bond returns. The mean for this spillover index is 0.381 over 2001:01-2011:12 and 0.476 over September through December 2008 during the height of the global financial crisis.
Keywords: Demand shocks, Oil prices, Bond returns, Supply shocks
JEL Classification: E44, G12, Q43
Suggested Citation: Suggested Citation