IMF Staff Country Reports

This Selected Issues paper analyzes determinants of sovereign spreads in The Bahamas. In order to analyze Bahamian sovereign spreads, a fundamentals-based model is estimated using data on emerging market economies. Changes in The Bahamas’ sovereign rating correspond closely with significant movements in Bahamian sovereign spreads. Bahamian sovereign spreads have declined since late 2022 and, by 2024, are aligned both with peer economies and the model-implied spread. The main findings are: first, while both domestic and global covariates are important determinants of spreads, a sizeable effect comes from the interaction of global risk aversion and a country’s risk rating. Second, inclusion in the Market Bond Index Global index Emerging is a significant driver for emerging markets. The spreads in The Bahamas would have compressed by 56 basis points compared to other countries with similar fundamentals if the archipelago were included in this index.