Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period

Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period - a Fortune or Misfortune?

February 12, 2014

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Format: Chicago

Christian H Ebeke, and Yinqiu Lu. Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period - a Fortune or Misfortune?, (USA: International Monetary Fund, 2014) accessed July 20, 2025

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

The paper shows that foreign holdings of local currency government bonds in emerging market countries (EMs) have reduced bond yields but have somewhat increased yield volatility in the post-Lehman period. Econometric analyses conducted from a sample of 12 EMs demonstrate that these results are robust and causal. We use an identification strategy exploiting the geography-based measure of EMs financial remoteness vis-à-vis major offshore financial centers as an instrumental variable for the foreign holdings variable.The results also show that, in countries with weak fiscal and external positions, foreign holdings are greatly associated with increased yield volatility. A case study using Poland data elaborates on the cross country findings.

Subject: Bond yields, Currencies, Financial institutions, Financial markets, Financial services, Money, Securities markets, Sovereign bonds, Yield curve

Keywords: Bond yields, Currencies, Domestic Bonds, Endogeneity issue, Foreign holding, Foreign Holdings, Global, Government bond, Government bond bond yield, Inflation rate, Poland yield regression, Securities markets, Sovereign bonds, Volatility, WP, Yield curve, Yield volatility, Yields

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/029
Stock No:

WPIEA2014029
ISBN:

9781484302859
ISSN:

1018-5941

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