Title: The anatomy of government bond yields synchronization in the Eurozone
Authors: Claudio Barbieri - Université Cote d'Azur and Scuola Superiore Sant'Anna (France) [presenting]
Mauro Napoletano - OFCE - SciencesPo (France)
Mattia Guerini - OFCE - SciencesPo (France)
Abstract: The synchronization of eurozone government bond yields at different maturities is investigated. To this scope, we combine principal component analysis and random matrix theory. We find that synchronization depends upon yields maturity. Short-term rates are not synchronized. For medium- and long-term yields, instead, synchronization has been high at the onset of the Euro experience, lapsed between the financial crisis and the end of the sovereign debt crisis and partially recovered after 2015. We show the existence of a duality between our results and portfolio theory, and we point toward divergence trades as a source of the self-sustained asynchronous dynamics. Our results envisage synchronization as a requirement for the smooth transmission of conventional monetary policy.