Exploring Volatility and Spillover Effects between African Sovereign Bond Markets and Global Long-Term Interest Rates
Exploring Volatility and Spillover Effects between African Sovereign Bond Markets and Global Long-Term Interest Rates

Summary/Abstract: The study investigated the existence of volatility and spillover effects between sovereign bond returns of South Africa and Ethiopia and the world’s long-term interest rate using multivariate generalized autoregressive conditional heteroskedasticity model. The results showed that volatility from the long-term world interest rate negatively affects the Ethiopian sovereign bond market. The results also showed a one-way spillover from South Africa's market to the U.S. long-term market, then from the U.S. to Ethiopia's market, and further from Ethiopia's to South Africa's market. However, no bidirectional spillover was observed within these markets. Besides, both African markets display high volatility persistence. Besides, the markets have a weak or insignificant correlation with the world’s long-term interest rate. Volatility in the markets is significantly affected by their respective past shocks or volatilities. Finally, it has forwarded policy inputs that should be tailored to the specific economic and financial context of each country.

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