IMF Working Papers

Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals

By Amadou N Sy

October 1, 2001

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Amadou N Sy. Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals, (USA: International Monetary Fund, 2001) 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 uses a panel data estimation of a simple univariate model of sovereign spreads on ratings to analyze statistically significant deviations from the estimated relationship. We find evidence of an asymmetric adjustment of spreads and ratings when such deviations are significant. In addition, the paper illustrates how significant disagreements between market and rating agencies' views can be used as a signal that further technical and sovereign analysis is warranted. For instance, we find that spreads were "excessively low" for most emerging markets before the Asian crisis. More recently, spreads were "excessively high" for a number of emerging markets.

Subject: Bonds, Credit ratings, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial services, Money, Securities markets, Yield curve

Keywords: Africa, Bond spreads, Bonds, Credit rating, Credit ratings, Emerging and frontier financial markets, Emerging market, Emerging market bond, Global, Market, Market participant, Monitoring, Rating, Rating adjustment, Rating agency, Rating downgrade, Rating upgrade, Risk appetite, Securities markets, Sovereign risk, Sovereign spread, WP, Yield curve

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2001/165

  • Stock No:

    WPIEA1652001

  • ISBN:

    9781451858051

  • ISSN:

    1018-5941

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