COINTEGRATION AND INTERDEPENDENCY OF GOVERNMENT BOND YIELD: EVIDENCE FROM ASEAN-4, INDIA, AND CHINA WITH GLOBAL GOVERNMENT BONDS YIELD

Abstract

The purpose of the study is to explore cointegration and interdependency of 10 years government bond yield of ASEAN-4 countries (Indonesia, Malaysia, Philippines, and Thailand), India, and China with global government bond yield of USA, Germany, and Japan. The research applied estimating model of Vector Autoregression (VAR) and Granger Causality/Block Xxogeneity Wald Test to observe two-way relationship between variables and employ weekly data of 10 years government bond current yield of each country from January 2007 until December 2022. After discovering that all exogenous variable (USA, Germany, and Japan) is independent through Granger Causality/Block Xxogeneity test, the long-run relationship is assessed with Johansen test. The outcome showed that there are no cointegration (long-run relationship) between 10 years government bond yield for ASEAN-4 countries, India, and China with global government bond yield of USA, Germany, and Japan. Short-run relationship estimated with VAR model and the result obtained that all government bond yields for ASEAN-4, India and China are mostly predicted by their own past lags. Furthermore, unlike other country in the research, Philippines and China are seen to be independent from global government bonds (USA, Germany, and Japan). The finding on this study enriched research that focused on observing relationship between countries, especially the smaller number of research that focused on long term government bond for ASEAN countries and developed countries. In addition, the research unlocked insights for investor on their investment strategy as well as for regulator in determining yield coupon as part of strategic policy by leveraging visibility of 10 years government bonds interdependency of developing and developed countries.