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Original Sin Redux: Role of Duration Risk

Author

Listed:
  • Carol Bertaut
  • Valentina Bruno
  • Hyun Song Shin

Abstract

We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of US investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates roll-over risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics due to strategic complementarities among mutual fund investors.

Suggested Citation

  • Carol Bertaut & Valentina Bruno & Hyun Song Shin, 2025. "Original Sin Redux: Role of Duration Risk," NBER Working Papers 33816, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33816
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    Cited by:

    1. Faia, Ester & Lewis, Karen K. & Zhou, Haonan, 2025. "Do investor differences impact monetary policy spillovers to emerging markets?," Journal of International Economics, Elsevier, vol. 156(C).
    2. Alessandro Moro & Andrea Zaghini, 2025. "The green sin: how exchange rate volatility and financial openness affect green premia," Review of Finance, European Finance Association, vol. 29(4), pages 1189-1217.
    3. Esteban Pérez Caldentey & Matías Vernengo, 2024. "A Financially Driven Business Cycle for Latin America and the Caribbean," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 77(1), pages 5-36.
    4. Tracy Chan & Goetz von Peter & Philip Wooldridge, 2025. "International finance through the lens of BIS statistics: bond markets, domestic and international," BIS Quarterly Review, Bank for International Settlements, September.
    5. Oscar Botero-Ramírez & Andrés Murcia & Mauricio Villamizar-Villegas, 2025. "Foreign investment dynamics: The impact of benchmark-driven versus unconstrained investors on local credit conditions," Borradores de Economia 1309, Banco de la Republica de Colombia.
    6. Longaric, Pablo Anaya & Cera, Katharina & Georgiadis, Georgios & Kaufmann, Christoph, 2025. "Investment funds and euro disaster risk," Working Paper Series 3029, European Central Bank.
    7. Bank for International Settlements, 2024. "Keeping the momentum:how finance can continue to support growth in EMEs," BIS Papers, Bank for International Settlements, number 148, May.
    8. 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.
    9. Ocampo, José Antonio & Villamizar-Villegas, Mauricio & Orbegozo-Rodríguez, Germán & Fajardo-Baquero, Nicolás & Botero-Ramírez, Oscar & Orozco-Vanegas, Camilo, 2025. "The role of investor participation on sovereign debt markets: Evidence from an emerging economy," Emerging Markets Review, Elsevier, vol. 66(C).
    10. Park, Cyn-Young & Shin, Kwanho, 2025. "The development of local currency bond markets and uncovered interest rate parity," Journal of International Money and Finance, Elsevier, vol. 154(C).
    11. Claudia M. Buch & Linda S. Goldberg, 2024. "International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications," Staff Reports 1091, Federal Reserve Bank of New York.
    12. Guilherme Suedekum, 2023. "Local Currency Sovereign Debt Markets, Global Financial Conditions and the Role of Foreign Investors," IHEID Working Papers 19-2023, Economics Section, The Graduate Institute of International Studies.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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