IMF Working Papers

Determinants of Emerging Market Sovereign Bond Spreads : Fundamentals vs Financial Stress

Author/Editor:

Iva Petrova ; Michael G Papaioannou ; Dimitri Bellas

Publication Date:

December 1, 2010

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 10/281

Subject:

Financial crisis International financial markets

Frequency:

Quarterly