Selected Issues Papers

To analyze Bahamian sovereign spreads, a fundamentals-based model is estimated using data on emerging market economies. 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 EMBIG index (Emerging Market Bond Index Global) 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.