[2020-1] Impacts of US Monetary Policy on Domestic Bond and FX Swap Markets

Macro Economy
US monetary policy domestic bond FX swap market event study financial crisis
Research Department(02-759-4254)

As the US dollar’s status has strengthened as a global safe haven, global factors, such as US monetary policy, seem to have had considerable impacts on financial markets in other countries. In consideration of this, this paper looked at the impacts of US monetary policy on domestic bond and FX swap markets through an event study.


According to our analysis, US monetary policy had significant positive impacts on domestic interest rates. In particular, it turned out to have bigger impacts on long-term products with high term premiums. By period, the correlation between US monetary policy and domestic interest rates was not significant before the financial crisis, but was clearly positive after the crisis. The US conventional monetary policy was seen to have big impacts on short-term and medium-term KTB yields, while its unconventional monetary policy had major impacts on long-term KTB yields. Moreover, swap rates in the FX swap markets reacted very sensitively to US monetary policy shocks before the financial crisis, while they did not show any significant reactions after the crisis.


Our analysis, showing the growing influence of US monetary policy on domestic long-term Treasury bond yields, implies that closer monitoring is needed of monetary policies in the US and in other major economies and of their impacts on domestic financial markets. Considering that global factors have greater influence on domestic financial markets, if an appropriate FX-related macroprudential policy is used to ease capital flow volatility, the effectiveness of our domestic monetary policy could be enhanced. Meanwhile, as the weakening sensitivity of FX swap market price variables to US monetary policy can be due partly to the current account surplus trend, it is understood that it must be necessary to work to maintain the current account surplus at adequate levels.

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