IMF Working Papers

The Long-Run Impact of Sovereign Yields on Corporate Yields in Emerging Markets

ByDelong Li, Nicolas E Magud, Alejandro M. Werner, Samantha Witte

June 4, 2021

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Format: Chicago

Delong Li, Nicolas E Magud, Alejandro M. Werner, and Samantha Witte. "The Long-Run Impact of Sovereign Yields on Corporate Yields in Emerging Markets", IMF Working Papers 2021, 155 (2021), accessed 12/24/2025, https://doi.org/10.5089/9781513573410.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We analyze the long-run impact of emerging-market sovereign bond yields on corporate bond yields, finding that the average pass-through is around one. The pass-through is larger in countries with greater sovereign risks and where sovereign bonds are more liquid. It is also greater for corporate bonds with lower ratings, shorter maturities, and for those issued by financial companies and government-related firms. Our results support theoretical arguments that corporate and sovereign yields are linked together through credit risks and liquidity premiums. Consequently, high sovereign risks may slowdown growth by persistently increasing private sector borrowing costs.