Determinants Of Emerging Market Bond Spreads

Author : Mr.Balazs Csonto,Mr.Iryna V. Ivaschenko
Publisher : International Monetary Fund
Page : 42 pages
File Size : 53,8 Mb
Release : 2013-07-10
Category : Business & Economics
ISBN : 9781484361481

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Determinants of Sovereign Bond Spreads in Emerging Markets by Mr.Balazs Csonto,Mr.Iryna V. Ivaschenko Pdf

We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe marketstress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads.

Author : Iva Petrova,Mr.Michael G Papaioannou,Mr.Dimitri Bellas
Publisher : International Monetary Fund
Page : 27 pages
File Size : 55,7 Mb
Release : 2010-12-01
Category : Business & Economics
ISBN : 9781455210886

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Determinants of Emerging Market Sovereign Bond Spreads by Iva Petrova,Mr.Michael G Papaioannou,Mr.Dimitri Bellas Pdf

This paper analyses the determimants of emerging market sovereign bond spreads by examining the short and long-run effects of fundamental (macroeconomic) and temporary (financial market) factors on these spreads. During the current global financial and economic crisis, sovereign bond spreads widened dramatically for both developed and emerging market economies. This deterioration has widely been attributed to rapidly growing public debts and balance sheet risks. Our results indicate that in the long run, fundamentals are significant determinants of emerging market sovereign bond spreads, while in the short run, financial volatility is a more important determinant of sperads than fundamentals indicators.

Author : Hong G. Min
Publisher : World Bank Publications
Page : 35 pages
File Size : 43,5 Mb
Release : 1998
Category : Bancos
ISBN : 8210379456XXX

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Determinants of Emerging Market Bond Spread by Hong G. Min Pdf

March 1998 Macroeconomic variables matter and so does liquidity. External shocks (international interest rates) appear not to matter. In the 1990s international bond issues from developing countries surged dramatically, becoming one of the fastest-growing devices for financing external development. Their terms have improved as institutional investors have become more interested in emerging market securities and better economic prospects in a number of developing countries. But little is known about what determines the pricing and thus the yield spreads of new emerging market bond issues. Min investigates what determines bond spreads in emerging markets in the 1990s. He finds that strong macroeconomic fundamentals in a country-such as low domestic inflation rates, improved terms of trade, and increased foreign assets-are associated with lower yield spreads. By contrast, higher yield spreads are associated with weak liquidity variables in a country, such as a high debt-to-GDP ratio, a low ratio of foreign reserves to GDP, a low (high) export (import) growth rate, and a high debt-service ratio. At the same time, external shocks-as measured by the international interest rate-matter little in the determination of bond spreads. In the aggregate, Latin American countries have a negative yield curve. This paper-a product of the Development Research Group-is part of a larger effort in the group to study international transmission of financial crises in emerging economies.

Author : Roland Beck
Publisher : Unknown
Page : 219 pages
File Size : 43,7 Mb
Release : 2003
Category : Bond market
ISBN : 3831426120

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Determinants of Emerging Market Bond Spreads by Roland Beck Pdf

Author : Hong G. Min
Publisher : Unknown
Page : 31 pages
File Size : 44,6 Mb
Release : 2016
Category : Electronic
ISBN : OCLC:1290705418

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Determinants of Emerging Market Bond Spread by Hong G. Min Pdf

Macroeconomic variables matter and so does liquidity. External shocks (international interest rates) appear not to matter.In the 1990s international bond issues from developing countries surged dramatically, becoming one of the fastest-growing devices for financing external development. Their terms have improved as institutional investors have become more interested in emerging market securities and better economic prospects in a number of developing countries. But little is known about what determines the pricing and thus the yield spreads of new emerging market bond issues.Min investigates what determines bond spreads in emerging markets in the 1990s. He finds that strong macroeconomic fundamentals in a country-such as low domestic inflation rates, improved terms of trade, and increased foreign assets-are associated with lower yield spreads.By contrast, higher yield spreads are associated with weak liquidity variables in a country, such as a high debt-to-GDP ratio, a low ratio of foreign reserves to GDP, a low (high) export (import) growth rate, and a high debt-service ratio.At the same time, external shocks-as measured by the international interest rate-matter little in the determination of bond spreads.In the aggregate, Latin American countries have a negative yield curve.This paper - a product of the Development Research Group - is part of a larger effort in the group to study international transmission of financial crises in emerging economies.

Author : Mansoor Dailami,Paul R. Masson,Jean Jose Padou
Publisher : World Bank Publications
Page : 31 pages
File Size : 54,6 Mb
Release : 2005
Category : Credit
ISBN : 9782005060715

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Global Monetary Conditions Versus Country-specific Factors in the Determination of Emerging Market Debt Spreads by Mansoor Dailami,Paul R. Masson,Jean Jose Padou Pdf

Abstract: "The authors offer evidence that U.S. interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over U.S. benchmark treasuries and therefore on their cost of capital. Their analysis improves on the existing literature and understanding by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes and by recognizing nonlinearities in the link between U.S. interest rates and emerging market bond spreads, as the level of interest rates affect the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in U.S. interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in spreads. Simulations of a 200 basis points (bps) increase in U.S. interest rates show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios. This would be in addition to the increase in the benchmark U.S. 10 year Treasury rate."--World Bank web site.

Author : Mr.Amine Mati,Mr.Emanuele Baldacci,Mr.Sanjeev Gupta
Publisher : International Monetary Fund
Page : 25 pages
File Size : 41,7 Mb
Release : 2008-11-01
Category : Business & Economics
ISBN : 9781451871173

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Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets by Mr.Amine Mati,Mr.Emanuele Baldacci,Mr.Sanjeev Gupta Pdf

Using a panel of 30 emerging market economies from 1997 to 2007, this paper investigates the determinants of country risk premiums as measured by sovereign bond spreads. Unlike previous studies, the results indicate that both fiscal and political factors matter for credit risk in emerging markets. Lower levels of political risk are associated with tighter spreads, while efforts at fiscal consolidation narrow credit spreads, especially in countries that experienced prior defaults. The composition of fiscal policy matters: spending on public investment contributes to lower spreads as long as the fiscal position remains sustainable and the fiscal deficit does not worsen.

Author : Mr.Fabio Comelli
Publisher : International Monetary Fund
Page : 43 pages
File Size : 44,7 Mb
Release : 2012-08-01
Category : Business & Economics
ISBN : 9781475505627

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Emerging Market Sovereign Bond Spreads by Mr.Fabio Comelli Pdf

We estimate sovereign bond spreads of 28 emerging economies over the period January 1998-December 2011 and test the ability of the model in generating accurate in-sample predictions for emerging economies bond spreads. The impact and significance of country-specific and global explanatory variables on bond spreads varies across regions, as well as economic periods. During crisis times, good macroeconomic fundamentals are helpful in containing bond spreads, but less than in non-crisis times, possibly reflecting the impact of extra-economic forces on bond spreads when a financial crisis occurs. For some emerging economies, in-sample predictions of the monthly changes in bond spreads obtained with rolling regression routines are significantly more accurate than forecasts obtained with a random walk. Rolling regression-based bond spread predictions appear to convey more information than those obtained with a linear prediction method. By contrast, bond spreads forecasts obtained with a linear prediction method are less accurate than those obtained with random guessing.

Author : Eduardo A. Cavallo,Patricio Valenzuela
Publisher : International Monetary Fund
Page : 30 pages
File Size : 43,9 Mb
Release : 2007-09
Category : Business & Economics
ISBN : UCSD:31822036080653

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The Determinants of Corporate Risk in Emerging Markets by Eduardo A. Cavallo,Patricio Valenzuela Pdf

This study explores the determinants of corporate bond spreads in emerging markets economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger share of the variance. In addition, the paper finds two asymmetries. The first is in line with the sovereign ceiling "lite" hypothesis which states that the transfer of risk from the sovereign to the private sector is less than 1 to 1. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding.

Author : Paolo Mauro,Nathan Sussman,Yishay Yafeh
Publisher : OUP Oxford
Page : 208 pages
File Size : 55,9 Mb
Release : 2006-03-16
Category : Business & Economics
ISBN : 9780191534133

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Emerging Markets and Financial Globalization by Paolo Mauro,Nathan Sussman,Yishay Yafeh Pdf

The frequency and virulence of recent financial crises have led to calls for reform of the current international financial architecture. In an effort to learn more about today's international financial environment, the authors turn to an earlier era of financial globalization between 1870 and 1913. By examining data on sovereign bonds issued by borrowing developing countries in this earlier period and in the present day, the authors are able to identify the characteristics of successful borrowers in the two periods. They are then able to show that global crises or contagion are a feature of the 1990s which was hardly known in the previous era of globalization. Finally, the authors draw lessons for today from archival data on mechanisms used by British investors in the 19th century to address sovereign defaults. Using new qualitative and quantitative data, the authors skilfully apply a variety of approaches in order to better understand how problems of volatility and debt crises are dealt with in international financial markets.

Author : Steven Kamin,Karsten von Kleist
Publisher : Unknown
Page : 58 pages
File Size : 53,5 Mb
Release : 1999
Category : Bond market
ISBN : UCSD:31822028139533

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The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s by Steven Kamin,Karsten von Kleist Pdf

Develops measures of emerging market credit spreads for the 1990s, based on data on new bond issues and bank loans, that cover a broader range of borrowers than the Brady bond spreads most commonly used to date.

Author : Laura Jaramillo,Anke Weber
Publisher : International Monetary Fund
Page : 25 pages
File Size : 51,9 Mb
Release : 2012-08-01
Category : Business & Economics
ISBN : 9781475505481

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Bond Yields in Emerging Economies by Laura Jaramillo,Anke Weber Pdf

While many studies have looked into the determinants of yields on externally issued sovereign bonds of emerging economies, analysis of domestically issued bonds has hitherto been limited, despite their growing relevance. This paper finds that the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion. During tranquil times in global markets, fiscal variables do not seem to be a significant determinant of domestic bond yields in emerging economies. However, when market participants are on edge, they pay greater attention to country-specific fiscal fundamentals, revealing greater alertness about default risk.

Author : Mr. Evan Papageorgiou,Rohit Goel
Publisher : International Monetary Fund
Page : 14 pages
File Size : 43,9 Mb
Release : 2021-12-16
Category : Business & Economics
ISBN : 9781616357597

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Drivers of Emerging Market Bond Flows and Prices by Mr. Evan Papageorgiou,Rohit Goel Pdf

An interesting disconnect has taken shape between local currency- and hard currency-denominated bonds in emerging markets with respect to their portfolio flows and prices since the start of the recovery from the COVID-19 pandemic. Emerging market assets have recovered sharply from the COVID-19 sell-off in 2020, but the post-pandemic recovery in 2021 has been highly uneven. This note seeks to answer why. Yields of local currency-denominated bonds have risen faster and are approaching their pandemic highs, while hard currency bond yields are still near their post-pandemic lows. Portfolio flows to local currency debt have similarly lagged flows to hard currency bonds. This disconnect is closely linked to the external environment and fiscal and inflationary pressures. Its evolution remains a key consideration for policymakers and investors, since local markets are the main source of funding for emerging markets. This note draws from the methodology developed in earlier Global Financial Stability Reports on fundamentals-based asset valuation models for funding costs and forecasting models for capital flows (using the at-risk framework). The results are consistent across models, indicating that local currency assets are significantly more sensitive to domestic fundamentals while hard currency assets are dependent on the external risk sentiment to a greater extent. This suggests that the post-pandemic, stressed domestic fundamentals have weighed on local currency bonds, partially offsetting the boost from supportive global risk sentiment. The analysis also highlights the risks emerging markets face from an asynchronous recovery and weak domestic fundamentals.

Author : Laura Jaramillo
Publisher : International Monetary Fund
Page : 23 pages
File Size : 41,9 Mb
Release : 2010-05-01
Category : Business & Economics
ISBN : 9781455200764

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Determinants of Investment Grade Status in Emerging Markets by Laura Jaramillo Pdf

Emerging market countries seek investment grade status to lower financing costs for the sovereign, expand the pool of potential investors to institutional investors, and allow corporates the possibility of reducing their borrowing costs. Using a random effects binomial logit model on a sample of 48 emerging markets, the paper finds that, to a large extent, investment grade rating assignments can be explained by a handful of variables. The results also suggest that efforts by emerging markets to increase the likelihood of an upgrade should focus on debt indicators rather than the other key determinants of investment grade status.

Author : Mansoor Dailami,Paul R. Masson,Jean Jose Padou
Publisher : Unknown
Page : 128 pages
File Size : 55,9 Mb
Release : 2008
Category : Electronic
ISBN : OCLC:1030874069

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Global Monetary Conditions Versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads by Mansoor Dailami,Paul R. Masson,Jean Jose Padou Pdf

US interest rate policy is shown to have a significant influence on emerging market bond spreads, but it is important to allow for non-linearities: US interest rates affect secondary market spreads differently, depending on countries' debt levels. Moderate debtors suffer little impact from an increase in US interest rates, while a country close to the borderline of solvency would face a much steeper increase in its spread. A 200 basis points increase in US short-term interest rates would increase emerging market spreads by 6-65 bps, depending on debt/GNI ratios.