Earthquakes and Emerging Market Sovereign Bond Spreads

Rabah Arezki, Patrick Imam (), Kangni Kpodar and Dao Le-Van

No 2025/218, IMF Working Papers from International Monetary Fund

Abstract: We study how sovereign bond markets respond to earthquakes in emerging markets, using data from 96 countries between 2012 and 2023. While earthquakes raise spreads on average, the effect depends critically on state capacity. In low-capacity countries, spreads rise sharply and persist; in high-capacity states, they remain stable or fall. These effects appear immediately, last several months, and are robust to multiple controls and placebo tests. Our findings suggest that markets interpret disasters not simply as economic shocks but as institutional stress tests, penalizing fragile states. Institutional quality, in this context, acts as disaster insurance.

Keywords: Earthquakes; Sovereign Bond Spread; State Capacity; earthquake disaster; sovereign bond market; emerging market sovereign bond; IMF working papers; earthquake evolution; Natural disasters; Sovereign bonds; Bonds; Yield curve; Securities markets; Global (search for similar items in EconPapers)
Pages: 42
Date: 2025-10-24
New Economics Papers: this item is included in nep-fmk and nep-ifn
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