What happens to US bond Yields when bond yields of foreign nations fall? Why?

Question

What happens to US bond Yields when bond yields of foreign nations fall? Why?

Answer 1

you'd have to look at the correlations on a country to country basis.  or you'd have to dig deeper to find out the cause of the yield changes.   it could be something specific, general market moves, or some timing quirk.

but all else equal, money moving to one sovereign's bonds means less money flowing into US bonds, causing yields to rise and price to decline.

but as far as Long Term movements go, correlations will give you an estimate, but then again, the past is not necessarily the best indicator of the future.  although the more long-term your investment horizon, the more meaningful your correlation will be.  excluding some sort of structural change to the market that is.

Answer 2

no direct effect.

there may be a flight to quality across boarders if an EU country defaulted, but that's far to remote to be worth considering.

the only affect foreign yields have is for exchange rates, not yields.

Answer 3

Consider the two following investment strategies:

1.  Invest in US bonds.

2.  Convert to foreign currency, invest in foreign bonds, Enter into a Forward contract to convert back into US securities.

These two strategies have to have the same returns (if they don't, then demand will change to make them the same).

The result of this is that if foreign interests rates decline, it will either affect US yields, current FX rates or forward FX rates.  But there is no way to predict which will happen.