No abstract

The emergence in the 1990s of a nascent project bond Much of the recent work relating to the role of market to fund long-term infrastructure projects in contractual covenants to the determination of bond developing countries merits attention. Dailami and prices has focused on the U.S. corporate bond market Hauswald compile .tailed information on a sample of with its unique bankruptcy code (Chapter 11) and well 105 bonds issued between January 1993 and March developed legal framework, recognizing the bond 2002 for financing infr --'lcrr.. projects in developing contract as the sole instrument of defining the rights and countries, document their contractual covenants, and duties of various parties. In circumstances in which the analyze their pricing determinants. They find that on underpinning legal and institutional frameworks average, project bonds are issued at approximately 300 governing contract formation and enforcement are not basis points above U.S. Treasury securities, have a well developed, the link between bond pricing and legal surprisingly high issue size of US$278 million, a maturity framework becomes important. This finding is confirmed of slightly under 12 years, and are rated slightly below by the authors' econometric analysis of project bond investment grade. In terms of geographic origin, projects pricing model. So, investors take into account the quality in Asia and Latin America have issued more bonds than of the host country's legal framework and reward those located in other regions.projects located in countries that adhere to the rule of law with tighter credit spreads and lower funding costs.This paper-a product of the Development Prospects Group-is part of a larger effort in the group to promote a healthy flow of investment capital to developing countries' infrastructure. Copies of the paper are available free from the World Bank,

We offer evidence in this paper that US interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over US benchmark treasuries, and therefore on their cost of capital. Our analysis improves upon the existing literature and understanding, by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes, and by recognizing non-linearities in the link between US interest rates and emerging market bond spreads, as the level of interest rates affects the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in US interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in the spreads. Simulations of a 200 basis points (bps) increase in US short-term interest rates (ignoring any change in the US 10 year Treasury rate) show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios.

No abstract

We offer evidence in this paper that US interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over US benchmark treasuries, and therefore on their cost of capital. Our analysis improves upon the existing literature and understanding, by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes, and by recognizing non-linearities in the link between US interest rates and emerging market bond spreads, as the level of interest rates affects the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in US interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in the spreads. Simulations of a 200 basis points (bps) increase in US short-term interest rates (ignoring any change in the US 10 year Treasury rate) show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios.