Emerging Market Sovereign Bond Spreads: Estimation and Back-testing

August 1, 2012

Preview Citation

Format: Chicago

Fabio Comelli. Emerging Market Sovereign Bond Spreads: Estimation and Back-testing, (USA: International Monetary Fund, 2012) accessed November 23, 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

We estimate sovereign bond spreads of 28 emerging economies over the period January 1998-December 2011 and test the ability of the model in generating accurate in-sample predictions for emerging economies bond spreads. The impact and significance of country-specific and global explanatory variables on bond spreads varies across regions, as well as economic periods. During crisis times, good macroeconomic fundamentals are helpful in containing bond spreads, but less than in non-crisis times, possibly reflecting the impact of extra-economic forces on bond spreads when a financial crisis occurs. For some emerging economies, in-sample predictions of the monthly changes in bond spreads obtained with rolling regression routines are significantly more accurate than forecasts obtained with a random walk. Rolling regression-based bond spread predictions appear to convey more information than those obtained with a linear prediction method. By contrast, bond spreads forecasts obtained with a linear prediction method are less accurate than those obtained with random guessing.

Subject: Bond yields, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial services, Securities markets, Sovereign bonds, Yield curve

Keywords: Africa, Asia and Pacific, Bond flow reversal, Bond Index, Bond spread, Bond yields, Emerging and frontier financial markets, Emerging economies, Emerging market region, Emerging market sovereign bond, Financial risk rating, Fitted sovereign bond, Global, ICRG economic risk rating index, In-sample forecasts, Rating index, Regress bond, Risk rating, Sample bond, Securities markets, Sovereign bond yield spreads, Sovereign bonds, Western Hemisphere, WP, Yield curve

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/212
Stock No:

WPIEA2012212
ISBN:

9781475505627
ISSN:

1018-5941

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