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On international integration of emerging sovereign bond markets

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  • Agur, Itai
  • Chan, Melissa
  • Goswami, Mangal
  • Sharma, Sunil

Abstract

The paper investigates the international integration of EM sovereign dollar-denominated and local-currency bond markets. Factor analysis is used to examine movements in bond yields and common sources of variation. Results suggest that EM dollar-denominated debt markets are highly integrated; one common factor, highly correlated with US and EU interest rates, explains 80% of the total variability in yields. Local currency bond markets are not as internationally integrated, and three common factors explain 74% of total variability. But a global interest rates factor still explains 63% of the yield variation accounted for by common factors. Heterogeneity among EMs is explored.

Suggested Citation

  • Agur, Itai & Chan, Melissa & Goswami, Mangal & Sharma, Sunil, 2019. "On international integration of emerging sovereign bond markets," Emerging Markets Review, Elsevier, vol. 38(C), pages 347-363.
    • Handle: RePEc:eee:ememar:v:38:y:2019:i:c:p:347-363
    DOI: 10.1016/j.ememar.2018.11.006
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    Keywords

    Financial globalization; Bond markets; Emerging markets; Capital flows; Safe assets; Debt denomination; Factor analysis;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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