Abstract
In this study, we investigate the return and volatility spillovers between emerging markets and US government bonds during the Covid-19-triggered pandemic by accounting for the market sentiment captured by the media coverage index. To study the dynamic spillovers, we use a TVP-VAR approach. Our results show a significant increase in the dynamic connectedness between media coverage, emerging market bonds, and US bonds, as well as between the respective volatilities, especially during the early phases of the Covid-19 pandemic, with the highest values observed in March 2020. The emerging market bonds appear to be net transmitters to the system and lead the system; whereas, the US bond market is the net receiver. These results show that, during the pandemic, the US bond market is less vulnerable and more resilient to changes in market sentiment vis-à-vis the fixed-income markets of the developing countries.
•We study the return and volatility spillovers between emerging markets and US bonds.•We use a TVP-VAR approach to investigate the dynamic spillovers of risk and volatility.•Media coverage index and emerging market bonds are net transmitters.•US bonds are net receivers.•US bonds are more resilient to changes in market sentiment during the Covid-19 pandemic.