Dynamic Connectedness and Spillovers between Yield Curve's Constituents and Commodities

We examine the connectedness between five key commodity markets and the components of yield curve. Using state of the art techniques, our static analysis indicates that the level component of yield curve is the only net transmitter of return shocks to the system, whiles agriculture and industrial commodity markets join the yield curve’s level as net volatility transmitters. Meanwhile, Energy, Livestock, and Precious metals are mainly net shock receivers. The results suggest that idiosyncratic spillovers in individual commodity markets are higher than external shocks. Precious commodity markets receive the most spillovers in the system. In pairs, our findings divulge that none of the commodity markets could transmit more shocks than the yield curve components. Our dynamic analysis discloses the consistency of Precious metals as diversifiers (safe havens) in tranquil (tumult) trading periods. We document higher contagion in commodity markets during various crisis periods. Timely policy actions in crises periods are recommended to lessen the degree of effect on fundamental cross-market linkages through contagion. The findings can assist market or economic regulators, financial market players, and practitioners (such as macroeconomists) to better comprehend the interplay between yield curve fluctuations and commodity markets. Further, our findings could assist in making better asset allocations and improved risk management decisions