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Energy price implications for emerging market bond returns

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  • Morrison, Eleanor J.

Abstract

This paper examines the impact of oil price innovations on emerging market sovereign total bond returns, as measured by the JP Morgan Emerging Market total return bond index, for portfolios of oil exporting and oil importing countries from 2007 to 2015. Globally emerging markets have benefited from investors’ desire for global diversification and search for higher yield returns. This recent wave of investor demand has provided benefits to both investment grade and noninvestment grade countries and has reduced reliance on International Finance Institutional sources. Bond market investors have shifted to shorter investment horizons, and an oil price shock may influence a country’s ability to access international markets for funding during adverse market conditions. Thus, oil price interaction with bond returns and the investor perception of oil price innovations on sovereign credit risk have the capacity to have profound impacts on national economies. This paper finds that oil prices have a statistically significant influence on portfolio total sovereign bond returns for globally focused oil exporters and importers. Exporter and importer total bond portfolio return responses to positive oil price shock conditions were similar, implying that sovereign governments’ bond portfolios are exposed to changes in investor risk perception, but not necessarily in terms of their oil importing and exporting status.

Suggested Citation

  • Morrison, Eleanor J., 2019. "Energy price implications for emerging market bond returns," Research in International Business and Finance, Elsevier, vol. 50(C), pages 398-415.
    • Handle: RePEc:eee:riibaf:v:50:y:2019:i:c:p:398-415
    DOI: 10.1016/j.ribaf.2019.06.010
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    References listed on IDEAS

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    Cited by:

    1. Zainuddin Saenong & Abd Azis Muthalib & Pasrun Adam & Wali Aya Rumbia & Heppi Millia & La Ode Saidi, 2020. "Symmetric and Asymmetric Effect of Crude Oil Prices and Exchange Rate on Bond Yields in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 10(2), pages 95-100.
    2. Dai, Zhifeng & Kang, Jie, 2021. "Bond yield and crude oil prices predictability," Energy Economics, Elsevier, vol. 97(C).
    3. Richter, Sylvia & Heyde, Frank & Horsch, Andreas & Wünsche, Andreas, 2021. "Determinants of project bond prices – Insights into infrastructure and energy capital markets," Energy Economics, Elsevier, vol. 97(C).
    4. Jingjian, Si & Xiangyun, Gao & Jinsheng, Zhou & Anjian, Wang & Xiaotian, Sun & Yiran, Zhao & Hongyu, Wei, 2023. "The impact of oil price shocks on energy stocks from the perspective of investor attention," Energy, Elsevier, vol. 278(PB).
    5. Goldstein, Michael A. & Namin, Elmira Shekari, 2023. "Corporate bond liquidity and yield spreads: A review," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Sovereign; Bond returns; Oil price shocks; Oil-exporting countries; Oil-importing countries;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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