Emerging Market Spread Compression: Is it Real or is it Liquidity?

By Laura E. Kodres, Kristian Hartelius, Kenichiro Kashiwase

January 1, 2008

Preview Citation

Format: Chicago

Laura E. Kodres, Kristian Hartelius, and Kenichiro Kashiwase. Emerging Market Spread Compression: Is it Real or is it Liquidity?, (USA: International Monetary Fund, 2008) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Despite recent turmoil, spreads on emerging market countries' sovereign bonds have fallen dramatically since mid-2002. Some have attributed the fall to improved economic fundamentals while others to ample global liquidity. The paper models spreads and attempts to empirically distinguish between the two factors. The results indicate that fundamentals, as embedded in credit ratings, are very important, but that expectations of future U.S. interest rates and volatility in those expectations are also a key determinant of emerging market spreads.

Subject: Credit ratings, Emerging and frontier financial markets, Futures, Securities markets, Yield curve

Keywords: EMBI, Emerging market, Future, Interest rate, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/010
Stock No:

WPIEA2008010
ISBN:

9781451868722
ISSN:

1018-5941

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