Determinants of Emerging Market Sovereign Bond Spreads

Iva K. Petrova · Michael G. Papaioannou · Dimitri Bellas

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Credit Risk and Financial Regulations Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

This paper analyses the determimants of emerging market sovereign bond spreads by examining the short and long-run effects of fundamental (macroeconomic) and temporary (financial market) factors on these spreads. During the current global financial and economic crisis, sovereign bond spreads widened dramatically for both developed and emerging market economies. This deterioration has widely been attributed to rapidly growing public debts and balance sheet risks. Our results indicate that in the long run, fundamentals are significant determinants of emerging market sovereign bond spreads, while in the short run, financial volatility is a more important determinant of sperads than fundamentals indicators.

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References

1995Estimating long-run relationships from dynamic heterogeneous panels 2009The Transmission of Financial Stress from Advanced to Emerging Economies 1999The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s 2004Empirical Determinants of Emerging Market Economies' Sovereign Bond Spreads 2010Sovereign Spreads: Global Risk Aversion, Contagion or Fundamentals?

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