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The Credit Spread Dynamics of Latin American Euro Issues in International Bond Markets

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Abstract

This paper investigates two important relationships in Latin American Eurobond markets: the determinants of credit spread changes using structural model and macroeconomic determinants and the underlying equilibrium dynamics when there is a default episode. We find four significant determinants of credit spread changes that drive the credit spreads: an asset and interest rate factor- consistent with structural models of credit spread pricing; the exchange rate- consistent with macroeconomic determinants; and the slope of the yield curve -consistent with business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in long-term equilibrium dynamics around the Argentine default on the 23rd of December 2001.

Suggested Citation

  • Kannan Thuraisamy & Gerry Gannon & Jonathan A. Batten, 2007. "The Credit Spread Dynamics of Latin American Euro Issues in International Bond Markets," Working Papers 2007_12, Deakin University, Department of Economics.
    • Handle: RePEc:dkn:acctwp:aef_2007_12
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    File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2007-12aef.pdf
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    More about this item

    Keywords

    credit spreads; long-run dynamics; Latin America; sovereign bonds; cointegration;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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