Common Policy Communication and Sovereign Yield Curves

Abstract

We study how common policy cycles and country-specific conditions enter sovereign yield curves, conditional valuation and market selection. Across six markets, the common share of two-year yield changes rises by 11.27 percentage points after 2019, while that of the ten-minus-two-year slope falls by 10.31 points. Ten-year commonality changes little. A fixed classifier applied to 559 official communications identifies a shared stance cycle associated with repricing at both two and ten years. Factors extracted from the other five banks retain these associations. Direct financing quantities and a balanced six-country demand panel connect communication to measured economic conditions. National Treasury-policy news also enters foreign long yields. Expanding-window valuation gaps are associated with subsequent yield adjustment. A joint common/local communication condition reduces average exposure from 50.5% to 8.3% in the six-market price-change exercise and from 53.4% to 7.9% in the three- market cash-flow exercise. Funded mean returns rise from -32.92 to -13.77 basis points; the paired gain has an interval spanning zero. Recursive factor and valuation refits assess the stability of those positions. The results connect international yield synchronization and curve differentiation to maturity-specific valuation and explicit allocation rules.

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