Discussion paper

DP16365 International Yield Co-movements

We decompose long-term nominal bond yields into real and inflation components in an
international context using inflation-linked and nominal bonds. In contrast to extant
results, real rate variation dominates the variation in inflation-linked and nominal yields.
Cross-country nominal and inflation-linked yield correlations have declined since the Great
Recession. Real rates are the main source of the correlation between nominal yields. Our
results are robust to various alternative measurements of inflation expectations and the
liquidity premium. They continue to hold when a no-arbitrage term structure model with
real, nominal, and inflation factors is used to effect the yield decomposition.


Bekaert, G and A Ermolov (eds) (2021), “DP16365 International Yield Co-movements”, CEPR Press Discussion Paper No. 16365. https://cepr.org/publications/dp16365