The impact of currency market shocks on global bond fund returns and volatility

This study employs advanced econometric models—TVP-SV-VAR, BEKK-MGARCH, DCC)-MGARCH, and WQR models—to analyse the exchange rate sensitivity of global bond ETFs. It examines four major funds (BNDX, TPINX, MGBIX, and FGBFX) with differing exposures to Samurai, Yankee, and Bulldog bonds. The results show that exchange rate shocks (YEN/USD, GBP/USD, and BTC/USD) unevenly affect ETF returns and volatility across funds and time horizons. Bitcoin-related spillovers are strongest for MGBIX and FGBFX, which are more exposed to riskier emerging market bonds. TPINX and FGBFX offer limited Bitcoin volatility hedging. While conditional hedging exists, global bond ETFs primarily serve as diversifiers rather than as consistent hedges. WQR reveals fund-specific behaviour, such as BNDX hedging GBP/USD and TPINX acting as a temporary safe haven for YEN/USD during stress. Overall, hedging effectiveness varies by fund, bond exposure, and macrofinancial conditions; however, diversification plays a dominant role.