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Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals

  • Amadou N. R. Sy

This paper uses a panel data estimation of a simple univariate model of sovereign spreads on ratings to analyze statistically significant deviations from the estimated relationship. We find evidence of an asymmetric adjustment of spreads and ratings when such deviations are significant. In addition, the paper illustrates how significant disagreements between market and rating agencies' views can be used as a signal that further technical and sovereign analysis is warranted. For instance, we find that spreads were "excessively low" for most emerging markets before the Asian crisis. More recently, spreads were "excessively high" for a number of emerging markets.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/165.

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Length: 29
Date of creation: 01 Oct 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/165
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  1. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  2. Christian B. Mulder & Brieuc Monfort, 2000. "Using Credit Ratings for Capital Requirementson Lending to Emerging Market Economies: Possible Impact of a New Basel Accord," IMF Working Papers 00/69, International Monetary Fund.
  3. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
  4. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  5. Roberto Perrelli & Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 01/191, International Monetary Fund.
  6. Steven B. Kamin & Karsten von Kleist, 1999. "The evolution and determinants of emerging market credit spreads in the 1990s," International Finance Discussion Papers 653, Board of Governors of the Federal Reserve System (U.S.).
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