Global Geopolitical Risk and the Long- and Short-Run Impacts on the Returns and Volatilities of US Treasuries

We examine the impact of global geopolitical risk (GPR) measures on US Treasuries' returns and volatilities, differentiating between long- and short-run investment behaviours among an array of time-to-maturities ranging from 1 month to 30 years, taking into account various economic and financial factors. Using monthly data and a panel autoregressive distributed lag (ARDL) model, the results indicate a negative long-run relationship between US Treasuries' returns and the global GPR index. These results generally hold when we consider geopolitical threats and geopolitical acts, although they exhibit some discrepancies between these two components and across the yield curve. Further results show a positive and strong long-run relationship between the US Treasuries' realized volatilities and the various geopolitical risk measures. The evidence holds true when we disentangle 'bad' from 'good' realized volatilities, although the impact of bad volatility is stronger than that of good volatility, which points to an asymmetric effect of realized volatility in US Treasuries. A sub-sample analysis suggests the robustness of the main results. Our analyses provide the first empirical evidence of the information content of GPR for US Treasury securities' returns and volatilities, which matters to fixed-income investors and decision-makers at the Federal Reserve.