Board of Governors of the Federal Reserve System

Figure 1: Changes in U.S. bond yields lead to changes in the value of the dollar and spill over to German bond yields

Figure 2: Global sovereign bond yields and equity prices typically move together

The left-hand side chart, "10-Year Bond Yields," shows the time series of nominal 10-year government bond yields for the United States, Canada, the United Kingdom, Germany, and Japan. The data are weekly Friday values. Units are percent and are along the right axis. The series begin in January 2010 and are shown through April 2018. The curves show that government bond yields in these countries tend to move together, though the actual sizes of movements may differ. The U.S. series (the solid black line) begins the period at a little over 3.5 and decreases to about 2.5 in late 2010. The series then rises back to about 3.5 in early 2011, decreases over the rest of 2011 to about 2, and then decreases further to about 1.5 in 2012. The series then increases to about 2.5 in the first half of 2013 and remains around that rate until the second half of 2014, when it moves down somewhat. The series shows some volatility and then decreases further to about 1.5 by mid-2016. The series rises to about 2.5 in later 2016, remains around that level through 2017, and then rises further to almost 3 in early 2018. The Canadian (dotted green line) and U.K. (dashed purple line) series move very closely with the U.S. series through 2014; thereafter, they follow the same general pattern of increases and decreases but generally average about 50 basis points less than the U.S. series; for the U.K. series, this differential increases to about 100 basis points beginning in the second half of 2016. The German series (dot-dashed blue line) follows the U.S. series very closely until the second half of 2013. Thereafter, the series follows the same pattern of increases and decreases but generally averages about 200 basis points less than the U.S. series. The series dips below zero in mid-2016 and then increases somewhat to around 0.5 in early 2018. The Japanese series (dot-dashed red line) shows a more pronounced decline from about 1.5 in early 2010 to less than zero in early 2016, but with small increases and decreases that follow the general pattern as for the other series. Since late 2016, the series has generally been slightly above zero.

The right-hand side chart, "Stock Market Indexes," shows the time series of equity market indexes for the United States (the S&P 500, black line), Canada (the S&P/TSX Composite index, dotted green line), the United Kingdom (the FTSE 350, dashed purple line), the euro area (the DJ Euro Stoxx, thin dot-dashed blue line), and Japan (the Nikkei, dot-dashed red line). The data are weekly averages of daily data. Units are percent and are along the right axis. The series begin in January 2010 and are plotted through April 2018. All indexes are set to January 8, 2010 = 100. The curves show that stock price indexes in these countries tend to move together, though the actual sizes of movements may differ. The U.S. series fluctuates somewhat but remains near 100 for most of 2010. It rises to about 120 by mid-2011 and decreases with some fluctuations to about 110 by early 2012. Thereafter the series rises fairly steadily to about 180 by mid-2015. The series is then somewhat volatile and decreases to about 160 by early 2016. The series then rises again to about 250 by late 2017. It then shows some volatility in early 2018 and ends the period around 240. The Canadian and U.K. series move closely together over the period. They follow similar patterns of increases and decreases as the U.S. series, but the overall increases over the period are less dramatic. By mid-2015, both indexes reach values of about 140. They are then somewhat volatile and decrease to about 110 by early 2016. They then rise steadily over 2017 to reach values of about 150. Similar to the U.S. series, they are somewhat volatile in 2018 and end the period slightly below their end-2017 levels. The euro-area series remains close to 100 with some volatility through mid-2011, and then it declines to about 80 from mid-2011 through 2012. The series then rises to about 110 by mid-2013. Thereafter, the series moves closely with the Canadian and U.K. series. The Japanese series tracks the euro-area series very closely through 2012. It also begins to rise in 2013, but the increase is faster and somewhat more volatile; it reaches a level of about 160 by end-2013. The series rises to about 190 by mid-2015, slightly above the U.S. series. It then declines somewhat more than the U.S. series to about 150 in early 2016. Thereafter the series moves in a pattern similar to the U.S. series, though at a level somewhat below it, and ends the period at about 210.

Figure 3: Changes in German yields around ECB announcements pass through to U.S. yields

Figure 4: Capital flows to emerging markets were already strong before the Federal Reserve cut its policy rate

Figure 5: EME vs. AE growth differentials and commodity prices drive capital flows to EMEs

Figure 6: Market expectations for Fed policy seem well aligned with policymaker expectations

Figure 7: Emerging market corporate debt at risk has begun to reverse its earlier rise, even in China