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The Term-Structure of Sovereign Default Risk in Colombia and its Determinants

  • Jair Ojeda-Joya

    ()

  • José E. Gómez-González

    ()

We study the determinants of sovereign default risk in Colombia by focusing on different time spans of risk which are indicated by yield spreads of government bonds with different maturities. Cointegration regressions are performed to analyze whether the drivers of short-run default risk are different from those of long-run default risk. Our results show that government indebtedness indicators are important determinants of default risk for yield spreads of bonds with maturities shorter than 7 years. In contrast, increases in investment and output growth indicators lower default risk at all maturities. A lower current account balance or a higher exchange rate volatility increase default risk for maturities lower than 10 years. Finally, an openness indicator is found to have positive effects on default risk for maturities longer than 7 years. This last effect is probably due to the increasing external vulnerability that results when a country becomes more integrated to the global economy.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 709.

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Length: 16
Date of creation: May 2012
Date of revision:
Handle: RePEc:bdr:borrec:709
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  1. Peter Rowland & José Luis Torres Trespalacios, 2004. "Determinants Of Spread And Creditworthiness For Emerging Market Sovereign Debt: A Panel Data Study," BORRADORES DE ECONOMIA 002337, BANCO DE LA REPÚBLICA.
  2. Jens Hilscher & Yves Nosbusch, 2007. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Money Macro and Finance (MMF) Research Group Conference 2006 114, Money Macro and Finance Research Group, revised 24 Apr 2007.
  3. Kurozumi, Eiji & Hayakawa, Kazuhiko, 2009. "Asymptotic properties of the efficient estimators for cointegrating regression models with serially dependent errors," Journal of Econometrics, Elsevier, vol. 149(2), pages 118-135, April.
  4. Eichler, Stefan & Maltritz, Dominik, 2013. "The term structure of sovereign default risk in EMU member countries and its determinants," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1810-1816.
  5. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Jun).
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