Emerging Market Spread Compression: Is it Real or is it Liquidity?
January 1, 2008
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Summary
Despite recent turmoil, spreads on emerging market countries' sovereign bonds have fallen dramatically since mid-2002. Some have attributed the fall to improved economic fundamentals while others to ample global liquidity. The paper models spreads and attempts to empirically distinguish between the two factors. The results indicate that fundamentals, as embedded in credit ratings, are very important, but that expectations of future U.S. interest rates and volatility in those expectations are also a key determinant of emerging market spreads.
Subject: Credit ratings, Emerging and frontier financial markets, Futures, Securities markets, Yield curve
Keywords: EMBI, emerging market, future, interest rate, WP
Pages:
36
Volume:
2008
DOI:
Issue:
010
Series:
Working Paper No. 2008/010
Stock No:
WPIEA2008010
ISBN:
9781451868722
ISSN:
1018-5941
