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US investment in global bonds: as the Fed pushes, some EMEs pull

Author

Listed:
  • John D. Burger
  • Rajeswari Sengupta
  • Francis E. Warnock
  • Veronica Cacdac Warnock

Abstract

We analyse reallocations within the international bond portfolios of US investors. The most striking empirical observation is a steady increase in US investors’ allocations towards emerging market local currency bonds, unabated by the global financial crisis and accelerating in the post-crisis period. Part of the increase in emerging market economy (EME) allocations is associated with global ‘push’ factors such as low US long-term interest rates and unconventional monetary policy as well as subdued risk aversion/expected volatility. But also evident is investor differentiation among EMEs, with the largest reallocations going to those EMEs with strong macroeconomic fundamentals such as less volatile inflation and more positive current account balances.

Suggested Citation

  • John D. Burger & Rajeswari Sengupta & Francis E. Warnock & Veronica Cacdac Warnock, 2015. "US investment in global bonds: as the Fed pushes, some EMEs pull," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(84), pages 729-766.
    • Handle: RePEc:oup:ecpoli:v:30:y:2015:i:84:p:729-766.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiv012
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    Cited by:

    1. Carlos Alberto Piscarreta Pinto Ferreira, 2022. "Revisiting The Determinants Of Sovereign Bond Yield Volatility," Working Papers REM 2022/0241, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2018. "Currency matters: Analyzing international bond portfolios," Journal of International Economics, Elsevier, vol. 114(C), pages 376-388.
    3. Carlos Alberto Piscarreta Pinto Ferreira, 2021. "Does Public Debt Ownership Structure Matter for a Borrowing Country?," Working Papers REM 2021/0190, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. Erdem, F. Pinar & Geyikci, Utku Bora, 2021. "Local, global and regional shocks indices in emerging exchange rate markets," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 98-113.
    5. Jesse Schreger & Wenxin Du, 2014. "Sovereign Risk, Currency Risk, and Corporate Balance Sheets," Working Paper 209056, Harvard University OpenScholar.
    6. Boermans, Martijn A. & Burger, John D., 2023. "Fickle emerging market flows, stable euros, and the dollar risk factor," Journal of International Economics, Elsevier, vol. 142(C).
    7. John D. Burger & Francis E. Warnock & Veronica C. Warnock, 2018. "The Effects of U.S. Monetary Policy on Emerging Market Economies’ Sovereign and Corporate Bond Markets," Central Banking, Analysis, and Economic Policies Book Series, in: Enrique G. Mendoza & Ernesto Pastén & Diego Saravia (ed.),Monetary Policy and Global Spillovers: Mechanisms, Effects and Policy Measures, edition 1, volume 25, chapter 3, pages 049-095, Central Bank of Chile.
    8. Mizen, Paul & Packer, Frank & Remolona, Eli & Tsoukas, Serafeim, 2021. "Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets," Journal of International Money and Finance, Elsevier, vol. 119(C).
    9. Ayala, Diana & Nedeljkovic, Milan & Saborowski, Christian, 2017. "What slice of the pie? The corporate bond market boom in emerging economies," Journal of Financial Stability, Elsevier, vol. 30(C), pages 16-35.
    10. Eichler, Stefan & Plaga, Timo, 2017. "The political determinants of government bond holdings," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 1-21.
    11. Christian Friedrich & Pierre Guérin, 2020. "The Dynamics of Capital Flow Episodes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 969-1003, August.
    12. Carol Bertaut & Valentina Bruno & Hyun Song Shin, 2023. "Original sin redux: role of duration risk," BIS Working Papers 1109, Bank for International Settlements.
    13. E Curcuru & Charles P Thomas & Francis E Warnock, 2015. "Cross-border portfolios: assets, liabilities, and non-flow adjustments," BIS Papers chapters, in: Bank for International Settlements (ed.), Cross-border Financial Linkages: Challenges for Monetary Policy and Financial Stability, volume 82, pages 7-24, Bank for International Settlements.
    14. Huber, Florian & Punzi, Maria Teresa, 2017. "The shortage of safe assets in the US investment portfolio: Some international evidence," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 318-336.
    15. Hale, Galina B. & Jones, Peter C. & Spiegel, Mark M., 2020. "Home currency issuance in international bond markets," Journal of International Economics, Elsevier, vol. 122(C).
    16. Shesadri Banerjee & M S Mohanty, 2021. "US monetary policy and the financial channel of the exchange rate: evidence from India," BIS Working Papers 945, Bank for International Settlements.
    17. Carlos Alberto Piscarreta Pinto Ferreira, 2022. "Investor Base Dynamics and Sovereign Bond Yield Volatility," Working Papers REM 2022/0234, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    18. Anusha Chari & Karlye Dilts Stedman & Christian Lundblad, 2017. "Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows," NBER Working Papers 23474, National Bureau of Economic Research, Inc.
    19. Georgiadis, Georgios & Mehl, Arnaud, 2016. "Financial globalisation and monetary policy effectiveness," Journal of International Economics, Elsevier, vol. 103(C), pages 200-212.
    20. Avdjiev, Stefan & Hale, Galina, 2019. "U.S. monetary policy and fluctuations of international bank lending," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 251-268.
    21. Timmer, Yannick, 2018. "Emerging market corporate bond yields and monetary policy," Emerging Markets Review, Elsevier, vol. 36(C), pages 130-143.
    22. Georgios Georgiadis & Arnaud Mehl, 2015. "Trilemma, not dilemma: financial globalisation and Monetary policy effectiveness," Globalization Institute Working Papers 222, Federal Reserve Bank of Dallas.
    23. Tim A Kroencke & Maik Schmeling & Andreas Schrimpf, 2015. "Global Asset Allocation Shifts," BIS Working Papers 497, Bank for International Settlements.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F6 - International Economics - - Economic Impacts of Globalization

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