Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress

By Iva Petrova, Michael G. Papaioannou, Dimitri Bellas

December 1, 2010

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Format: Chicago

Iva Petrova, Michael G. Papaioannou, and Dimitri Bellas. Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress, (USA: International Monetary Fund, 2010) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyses the determimants of emerging market sovereign bond spreads by examining the short and long-run effects of fundamental (macroeconomic) and temporary (financial market) factors on these spreads. During the current global financial and economic crisis, sovereign bond spreads widened dramatically for both developed and emerging market economies. This deterioration has widely been attributed to rapidly growing public debts and balance sheet risks. Our results indicate that in the long run, fundamentals are significant determinants of emerging market sovereign bond spreads, while in the short run, financial volatility is a more important determinant of sperads than fundamentals indicators.

Subject: Emerging and frontier financial markets, External debt, Fiscal stance, Sovereign bonds, Yield curve

Keywords: Government bond, Short-term debt, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/281
Stock No:

WPIEA2010281
ISBN:

9781455210886
ISSN:

1018-5941

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