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Sovereign Credit Ratings and Spreads in Emerging Markets

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  • International Monetary Fund
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    Abstract

    Sovereign 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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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24677
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/44.

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    Length: 17
    Date of creation: 01 Mar 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/44

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    Postal: International Monetary Fund, Washington, DC USA
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    Related research

    Keywords: Sovereign debt; Emerging markets; Credit risk; Economic models; public debt; external public debt; standard deviation; external debt; standard errors; equation; domestic public debt; probability; fixed effects model; dummy variables; domestic growth; regression analysis; explanatory power; numerical values; debt burden; market debt; debt reduction; samples; horizontal axis; sovereign bond; reserve bank; foreign debt; global liquidity; correlation; domestic debt; debt problems; time series; national debt; debt management; international lending; empirical model; equations; logarithm; empirical specification;

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    References

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    1. Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," Research Department Publications, Inter-American Development Bank, Research Department 4445, Inter-American Development Bank, Research Department.
    2. Torsten Sløk & Mike Kennedy, 2004. "Factors Driving Risk Premia," OECD Economics Department Working Papers 385, OECD Publishing.
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    Cited by:
    1. 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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