The long-run impact of sovereign yields on corporate yields in emerging markets

Delong Li, Nicolas Magud and Alejandro Werner

Journal of International Money and Finance, 2023, vol. 130, issue C

Abstract: We analyze the long-run impact of sovereign yields on corporate yields of the same country, finding that, for emerging markets, the average pass-through is around one. The pass-through is larger in countries with greater sovereign risk and where sovereign bonds are more liquid. The pass-through is also greater for corporate bonds with lower ratings, shorter maturities, and those issued by financial companies and government-related firms. Our results support theoretical arguments that corporate and sovereign yields are linked together through credit risk and liquidity premiums. Consequently, high sovereign risk can slowdown growth by persistently increasing private sector borrowing costs.

Keywords: Bonds; Emerging markets; Sovereign risk; Transfer risk; Liquidity premium; JEL Classification Numbers: F34; G12; G15 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Long-Run Impact of Sovereign Yields on Corporate Yields in Emerging Markets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:130:y:2023:i:c:s0261560622001516

DOI: 10.1016/j.jimonfin.2022.102748

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