Sovereign Credit Ratings and Spreads in Emerging Markets: Does Investment Grade Matter?
AbstractSovereign investment grade status is often associated with lower spreads in international markets. Using a panel framework for 35 emerging markets between 1997 and 2010, thispaper finds that investment grade status reduces spreads by 36 percent, above and beyond what is implied by macroeconomic fundamentals. This compares to a 5-10 percent reduction in spreads following upgrades within the investment grade asset class, and no impact formovements within the speculative grade asset class, ceteris paribus. While global financial conditions play a central role in determining spreads, market sentiment improves with lower external public debt to GDP levels and higher domestic growth rates.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/44.
Date of creation: 01 Mar 2011
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- Torsten Sløk & Mike Kennedy, 2004. "Factors Driving Risk Premia," OECD Economics Department Working Papers 385, OECD Publishing.
- Martín González Rozada & Eduardo Levy Yeyati, 2006.
"Global Factors and Emerging Market Spreads,"
Research Department Publications
4445, Inter-American Development Bank, Research Department.
- Basu, Kaushik & De, Supriyo & Ratha, Dilip & Timmer, Hans, 2013. "Sovereign ratings in the post-crisis world : an analysis of actual, shadow and relative risk ratings," Policy Research Working Paper Series 6641, The World Bank.
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