Global Spillovers from U.S. Bond Supply Shocks

Danila Smirnov

No 2026/229, IMF Working Papers from International Monetary Fund

Abstract: I study spillovers from U.S. bond supply shocks, identified from yield moves around U.S. Treasury auction announcements. Using the shocks as instruments in daily and monthly local projections for AEs and EMs, I find substantial pass-through to global long-term rates. A debt expansion shock that raises the U.S. 10-year yield by 10 bps lifts foreign 10-year yields by roughly 7 bps within a few business days. Monthly aggregation shows contractionary real effects: U.S. industrial production falls up to 0.4 percent after eight months and foreign industrial production by a comparable amount, around 0.4 percent, with a more persistent profile. The foreign contraction reflects financial tightening, exchange-rate depreciation, and weaker U.S. demand. Spillovers are heterogeneous: moving from the 25th to 75th percentile of foreign investor participation deepens the IP decline by 0.5 pp. Results are robust to a demand-side shock and consistent with the relevant benchmarks, highlighting U.S. bond supply as a key driver of global financial conditions and real activity, amplified by foreign investor participation and weak domestic fundamentals.

Keywords: fiscal spillovers; bond supply shocks; local projections; high-frequency identification; international transmission (search for similar items in EconPapers)
Pages: 43
Date: 2026-10-23
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