The impact of sovereign risk on bond duration: Evidence from Asian sovereign bond markets

Lee, Hei Wai; Xie, Yan Alice; Yau, Jot

doi:10.1016/j.iref.2010.11.020

Cited by 22 publications

(13 citation statements)

References 23 publications

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“…Moreover, all these proposed relationships intensify in times of crisis. These arguments are supported by the results of Xie et al (2009) and Lee et al (2011), who analyzed the relationship between sovereign risk and duration instead of maturity. Broner et al (2013) examined a scenario of risk-averse investors.…”

Section: Relation Between Sovereign Risk and Debt Maturity Structurementioning

confidence: 70%

“…The authors indicated that this phenomenon is not convenient for countries that are facing a high sovereign risk. Lee et al (2011) examined the relationship between Macaulay duration and sovereign risk for a sample of bonds issued in U.S. dollars by Asian countries for the period between 1997 and 2009. They found that risk reduced the duration of the bonds, and confirmed the results of Xie et al (2009).…”

Section: Introductionmentioning

confidence: 99%

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Bond Yields, Sovereign Risk and Maturity Structure

González-Fernández¹,

González-Velasco²

2018

Risks

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The aim of this paper is to analyze the relation between maturity structure, sovereign bond yields and sovereign risk in the Economic and Monetary Union for the period of 1990-2013. The results confirm the existence of an inverse relationship between sovereign bond yields, sovereign risk and the maturity structure of sovereign debt, regardless of the proxy that is used to measure sovereign risk and the time variance of the variables employed. The results indicate that risk shortens the maturity structure of sovereign debt because it reduces the stock of long-term debt. The relationship between maturity structure and sovereign bond yields differs depending on the risk of the countries analyzed (non-monotonic relationship) and the differences between peripheral and core countries are greater for higher levels of the yields. If we control for the indebtedness level of these countries, the results show that the relationship between the sovereign bond yields and maturity strengthens as the debt level increases.Risks 2018, 6, 109 2 of 25 maturity structure and credit risk has been analyzed in depth in the field of corporate finance, for instance in the works of Myers (1977), Flannery (1986 and Diamond (1991) and, more recently, in those of Baker et al. (2003) and Brunnermeier and Oehmke (2013), among others. However, there are fewer studies in the field of public finance in which the relationship between maturity and sovereign risk is analyzed, as public finance studies have paid more attention to other research topics, such as debt levels and risk premiums. Moreover, maturity structure is a fundamental tool in managing sovereign debt (Goudswaard 1990). Therefore, this paper attempts to extend the existing literature on this line of research, which is particularly interesting in the context of the current financial crisis.The results showed that sovereign bond yields, sovereign risk and the maturity structure of sovereign debt are inversely related. This finding indicates that an increase in the risk level shortens the maturity structure for the sample. Furthermore, the analysis of the debt maturity structure suggests it is reduced when the sovereign risk increases as the proportion of long-term debt reduces. Another interesting result was the existence of a non-monotonic relationship between sovereign bond yields and the maturity structure debt. We found evidence that in high risk countries (i.e., peripheral countries), the maturity structure of the debt shortens because of the increase in sovereign bond yields. However, in countries with lower risk (i.e., core countries 1 ), this inverse relationship is not as clear. If sovereign bond yields increase, the yields of long-term bonds from countries with higher sovereign risk (i.e., peripheral countries) increase to a greater extent than those of short-term bonds, i.e., the increase in the sovereign bond yields increases the term premium. Therefore, these countries resort to issuing short-term debt to reduce their funding costs. However, the yields of long-term governmen...

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Section: Relation Between Sovereign Risk and Debt Maturity Structurementioning

confidence: 70%

Section: Introductionmentioning

confidence: 99%

Bond Yields, Sovereign Risk and Maturity Structure

González-Fernández¹,

González-Velasco²

2018

Risks

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“…He defined it "as the weighted average of the time until bondholders should receive the cash flows promised by a bond". This concept has been the cornerstone of the fixed-income portfolio and bank interest rate risk management [7,8]. Hicks [9] came to the same concept computing the semi-elasticity of bond prices to their yield to maturity.…”

Section: Alternative Estimations Of Implied Equity Durationmentioning

confidence: 99%

Performance of Alternative Estimation Procedures of the Implied Equity Duration in a Small Stock Market

Fullana

Toscano

2020

Sustainability

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This paper is focused on the measurement of interest rate risk of nonfinancial firms. The measurement is the initial step in the risk management, which, in the context of financial risks, it is expected to lead to better levels of enterprises’ financial sustainability. Concretely, we checked the performance of alternative estimation procedures of the implied equity duration as a measure of the exposure to interest rate risk of firms listed on a small stock market. Previous evidence in the US stock market shows that when the implied equity duration is computed using industry-specific parameters instead of market parameters, significant differences arise in their absolute and relative values and even in their ranking. In this paper, we checked the robustness of these results when we moved to a smaller stock market. To do so, we replicated previous analyses carried out in the Spanish stock market but using alternative estimation procedures. We conclude that significant differences arise in the implied equity duration estimations when we consider industry-specific parameters instead of market parameters. This finding in a small stock market is in line with previous evidence found for the US stock market.

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“…Government bond duration is also included. It is expected that decreasing credit ratings and increasing concerns for the countries solvency, will lead to lower duration for their bonds (Lee et al, 2011).…”

Section: [Table 1 Here]mentioning

confidence: 99%

Volatility co-movements and spillover effects within the Eurozone economies: A multivariate GARCH approach using the financial stress index

MacDonald

Sogiakas

Tsopanakis

2018

Journal of International Financial Markets, Institutions and Mo

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MacDonald, R., Sogiakas, V. and Tsopanakis, A. (2018) Volatility comovements and spillover effects within the Eurozone economies: A multivariate GARCH approach using the financial stress index. AbstractThe Eurozone crisis is one the most important economic event in recent years. At its peak, the effects of the crisis have put at serious risk the outcome of the euro project, exposing the inherent weaknesses and vulnerabilities of the monetary union. As the degree of economic and financial integration of these countries is significant, we aim to investigate in details the potential cross-covariance and spillover effects between the Eurozone economies and financial markets. In order to do this, we employ financial stress indexes, as systemic risk metrics in a multivariate GARCH model. This method is able to capture markets' dependencies and volatility spillovers and is employed on a single market level as well as on the full spectrum of Eurozone markets. The empirical results have shown the important and intensive stress transmission on banking and money markets. Moreover, the role of peripheral countries as stress transmitter is verified, but only for particular periods. The significant spillover effects from core countries are also evident, indicating their important role in the Euro Area and its overall financial stability. The "decoupling" hypothesis is empirically verified, underling the gradually decreasing intensity of spillovers between Euro Area countries.Overall, this paper exhibits the complex structure of spillover effects for Eurozone, along with a clustering effect in the most recent times. : C43, C58, G01, G15 JEL Classifications

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The impact of sovereign risk on bond duration: Evidence from Asian sovereign bond markets

Cited by 22 publications

References 23 publications

Bond Yields, Sovereign Risk and Maturity Structure

Bond Yields, Sovereign Risk and Maturity Structure

Performance of Alternative Estimation Procedures of the Implied Equity Duration in a Small Stock Market

Volatility co-movements and spillover effects within the Eurozone economies: A multivariate GARCH approach using the financial stress index

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