Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress

Bellas, Dimitri; Papaioannou, Michael G.; Petrova, Iva

doi:10.2139/ssrn.1751394

Cited by 12 publications

(15 citation statements)

References 5 publications

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“…In Borio and Packer (2004), original sin, which reflects the inability of a country to borrow abroad in domestic currency, and currency mismatch are also found to be determinants of country risk premia. Bellas et al (2010) also find that, in the short run, financial indicators matter more than macroeconomic fundamentals. In particular, they show that financial vulnerabilities, as proxied by the Emerging Market Financial Stress Index and the VIX index, are important determinants of country risk.…”

mentioning

confidence: 81%

“…He further concludes that the bond spread is a better measure of country risk than the spread on international bank loans rates, since the former is more sensitive to debt. Bellas et al (2010) distinguish between long-and short-term determinants of country risk and show that, in the long run, the level of debt is one of macroeconomic fundamentals, which matter most (in addition to fiscal balance, current account, political risk, and trade openness).…”

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confidence: 97%

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Inflation Targeting and Country Risk: An Empirical Investigation

Fouejieu

Roger²

2013

IMF Working Papers

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The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries' fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is hypothesized that country risk premia for IT countries (especially among emerging market economies) may be lower than for other countries owing to greater policy predictability and more stable long-term inflation. The findings suggest that IT reduces the risk premium, both through adoption of the IT regime, and through the observed track record in stabilizing inflation.

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confidence: 81%

mentioning

confidence: 97%

Inflation Targeting and Country Risk: An Empirical Investigation

Fouejieu

Roger²

2013

IMF Working Papers

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“…Alexopoulou et al (2009) find that fundamentals and global factors are significant both on the short-and the long-term in the CEE countries. Bellas et al (2010), applying both fixed-effects and pooled mean group estimation, find that country fundamentals are significant only in the long-term, while the global risk aversion affects spreads both in the short-and the long-term. González-Rozada and Levy-Yeyati (2005), using an error correction model to separate short-and long-term drivers of spreads, show that credit rating and global factors are significant determinants in both time horizons.…”

Section: Related Literaturementioning

confidence: 94%

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

Csonto

Ivaschenko

2013

SSRN Journal

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“…Starting with the seminal work by Edwards (1984), determinants of sovereign bond spreads in emerging markets have been a topic of wide research interest. For instance, some of the studies that examine alternative factors that have an impact on sovereign spreads in emerging market economies (EMEs) include Ciarlone, Piselli, and Trebeschi (2009), Bellas, Papaioannou, and Petrova (2010), Baldacci, Supta, andMati (2011), andCsonto andIvaschenko (2013).…”

Section: Literature Reviewmentioning

confidence: 99%

Does Gross or Net Debt Matter More for Emerging Market Spreads?

Hadzi-Vaskov¹,

Ricci²

2021

J of Money Credit Banking

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Does gross or net debt matter for long‐term sovereign spreads in emerging markets? The topic is important for understanding the borrowing cost implications of public asset–liability management decisions (e.g., using assets to lower debt). We investigate this question using data on emerging market economies (EMEs) over the period 1998–2014. We find that both gross debt and assets have a significant impact on long‐term sovereign bond spreads in emerging markets, with effects roughly offsetting each other (coefficients of opposite sign and similar magnitude). Hence, net debt seems more appropriate than gross debt when evaluating the impact of indebtedness on spreads. The empirical results suggest that an increase in net debt by 10 percentage points of GDP implies an increase in the spread by 100–120 basis points, and the effect is larger during periods of domestic distress. The key results from this empirical study are quite robust to alternative specifications and subgroups of EMEs.

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Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress

Cited by 12 publications

References 5 publications

Inflation Targeting and Country Risk: An Empirical Investigation

Inflation Targeting and Country Risk: An Empirical Investigation

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

Does Gross or Net Debt Matter More for Emerging Market Spreads?

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