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Emerging Market Sovereign Bond Spreads

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  • Fabio Comelli
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    Abstract

    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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/212.

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    Length: 43
    Date of creation: 01 Aug 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/212

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    Related research

    Keywords: Emerging markets; Sovereign debt; Bonds; Economic models; bond; bond spreads; sovereign bond; bond spread; sovereign bonds; bond yield; market bond; emerging market bond; external borrowing; external debt; currency crises; stock market volatility; stock market; bond yields; external financing; financial stability; current account; international country risk guide; global liquidity; current account balance; financial markets; government debt; risk-free interest rate; private creditors; high yield bond; financial assets; bond index; nominal exchange rate; reserve holdings; debt obligations; financial globalization; market debt; external shocks; debt sustainability; local currency bond markets; external debt obligations; external debt financing; sovereign borrowers; current account balances; bond markets; local currency bond; brady bonds; financial market; nominal interest rate; international finance; bond flow;

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    References

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    1. Bertrand Candelon & Elena-Ivona Dumitrescu & Christophe Hurlin, 2012. "How to evaluate an Early Warning System ?," Working Papers halshs-00450050, HAL.
    2. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    3. Mauro, Paolo & Sussman, Nathan & Yafeh, Yishay, 2007. "Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870-1913 and Today," OUP Catalogue, Oxford University Press, number 9780199226139, September.
    4. Luca Antonio Ricci & Marcos Chamon & Yuanyan Sophia Zhang, 2011. "Country Insurance Using Financial Instruments," IMF Working Papers 11/169, International Monetary Fund.
    5. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
    6. Gabriela Dobrescu & Iva Petrova & Nazim Belhocine & Emanuele Baldacci, 2011. "Assessing Fiscal Stress," IMF Working Papers 11/100, International Monetary Fund.
    7. Susan Schadler & Pipat Luengnaruemitchai, 2007. "Do Economists' and Financial Markets' Perspectiveson the New Members of the Eu Differ?," IMF Working Papers 07/65, International Monetary Fund.
    8. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    9. Christopher F Baum, 2006. "An Introduction to Modern Econometrics using Stata," Stata Press books, StataCorp LP, number imeus, March.
    10. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Riedel, Christoph & Thuraisamy, Kannan S. & Wagner, Niklas, 2013. "Credit cycle dependent spread determinants in emerging sovereign debt markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 209-223.
    2. Luís Brandão Marques & Gaston Gelos & Natalia Melgar, 2013. "Country Transparency and the Global Transmission of Financial Shocks," IMF Working Papers 13/156, International Monetary Fund.
    3. Christian Ebeke & Yinqiu Lu, 2014. "Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period - a Fortune or Misfortune?," IMF Working Papers 14/29, International Monetary Fund.
    4. Ercio Muñoz S., 2013. "Precio de Materias Primas y Spread Soberano en Economías Emergentes ¿Importa la Concentración de las Exportaciones?," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 100-121, April.

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