How Much Risk in U.S. Government Bond Markets Is Transmitted to Their Canadian Counterparts?

We address this question by jointly modeling the distributional dynamics of the U.S. and Canadian term premia. Our approach combines a flexible marginal specification—the Skewed Generalized Error Distribution—with a flexible bivariate copula (BB7) to capture evolving cross-market dependence. We illustrate the usefulness of this framework by examining December 2024, a period marked by a sharp rise in the U.S. term premium, and track how the forecasted joint distributions evolved throughout this episode. We document a striking change in conditional tail dependence between U.S. and Canadian term premia over this period. While term premia serve as a motivating application, our framework is applicable to a broad class of asset prices and macro-financial variables.