Global Financial Spillovers to Emerging Market Sovereign Bond Markets
June 26, 2015
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Summary
Foreign holdings of emerging markets (EMs) government bonds have increased substantially over the last decade. While foreign participation in local-currency sovereign bond markets provides an additional source of financing and reduces sovereign yields, it raises concerns about increased sensitivity of yields to shifts in market sentiment. The analysis in this paper suggests that foreign participation and an undiversified investor base transmit global financial shocks to local-currency sovereign bond markets by increasing yield volatility and, beyond a certain threshold, amplify these spillovers. These estimates are robust to a range of econometric techniques including panel smooth threshold regression.
Subject: 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
Pages:
22
Volume:
2015
DOI:
Issue:
141
Series:
Working Paper No. 2015/141
Stock No:
WPIEA2015141
ISBN:
9781513552750
ISSN:
1018-5941
