Global Financial Spillovers to Emerging Market Sovereign Bond Markets
IMF Working Papers, June 26, 2015
Source details
- Canonical URL
- Global Financial Spillovers to Emerging Market Sovereign Bond Markets
Other formats
Bibliographic details
- Authors: Christian H Ebeke, Annette J Kyobe
- Published: June 26, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513552750.001
Summary and key findings
- Foreign holdings of emerging markets (EMs) government bonds have increased substantially over the last decade.
- Foreign participation in local-currency sovereign bond markets:
- Provides an additional source of financing.
- Reduces sovereign yields.
- Raises concerns about increased sensitivity of yields to shifts in market sentiment.
- The analysis suggests that:
- Foreign participation and an undiversified investor base transmit global financial shocks to local-currency sovereign bond markets by increasing yield volatility.
- Beyond a certain threshold, foreign participation and an undiversified investor base amplify these spillovers.
- Results are robust to a range of econometric techniques including panel smooth threshold regression.
Methodology and robustness
- Econometric approach includes panel smooth threshold regression.
- Robustness of estimates emphasized across a range of econometric techniques (panel smooth threshold regression explicitly named).
Policy implications and considerations
- Increased foreign participation can lower sovereign financing costs but may raise vulnerability to global financial shocks through higher yield volatility.
- Undiversified investor bases can amplify international spillovers once certain thresholds of foreign participation are reached.
- Policy focus implied: monitor composition of sovereign bond holders and consider measures to mitigate amplification of global shocks via local-currency sovereign bond markets.
Subjects and keywords (as listed)
- Subjects: Bond yields, Financial institutions, Financial markets, Foreign exchange, Forward exchange rates, Public debt, Securities markets, Sovereign bonds
- Keywords: Africa, bond yield, Bond yields, EM bond markets, EM sovereign bond bond yield, EM sovereign bond yield, Financial shocks, Forward exchange rates, Global, Interest rates, investor, investor base, Non-linearity, Securities markets, sovereign bond bond market, sovereign bond market, Sovereign bonds, Spillovers, WP