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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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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

English

Publication Date:

December 1, 2010

ISBN/ISSN:

9781455210886/1018-5941

Stock No:

WPIEA2010281

Format:

Paper

Pages:

25

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