The disconnect between rising short and low long interest rates has been a distinctive
feature of the 2000s. Both research and policy circles have argued that international
forces, such as global monetary policy (e.g. Rogoff, 2006); international business cycles
(e.g. Borio and Filardo, 2007); or a global savings glut (e.g Bernanke, 2005) may be
responsible. In this paper, we employ recent advances in panel data econometrics to
document the disconnect and link it explicitly to the existence of a global latent factor that dominates the long end of the term spread for the recent period; the saving glut story emerges as the most likely contender for the global factor
