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Global risk aversion and the term premium gap in emerging market economies

Author

Listed:
  • Marco Flaccadoro

    (Bank of Italy)

  • Stefania Villa

    (Bank of Italy)

Abstract

In this paper we analyze the impact of shocks to global risk aversion on the term structure of sovereign spreads between emerging market economies (EMEs) and the US economy. Focusing on the difference between long- and short-term spreads (i.e. the term premium gap), we find that an increase in global risk aversion reduces the term premium gap. This finding is consistent with the evidence that, during crises, EMEs experience a higher risk of default with respect to safe advanced economies, and to a greater extent at shorter maturities.

Suggested Citation

  • Marco Flaccadoro & Stefania Villa, 2025. "Global risk aversion and the term premium gap in emerging market economies," Temi di discussione (Economic working papers) 1493, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1493_25
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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