How do oil prices affect emerging market sovereign bond spreads?

Shiu-Sheng Chen, Shiangtsz Huang and Tzu-Yu Lin

Journal of International Money and Finance, 2022, vol. 128, issue C

Abstract: This paper examines whether oil price changes have significant impacts on emerging market sovereign bond spreads. In particular, we focus on how different structural shocks to oil prices affect the bond spreads. Using monthly data for 15 emerging market countries from 1998 to 2019, we show evidence that shocks to oil supply play an insignificant role in determining the bond spreads. In contrast, oil-specific demand shocks have both statistically and economically significant impacts on emerging market sovereign bond spreads. Global aggregate demand shocks are of secondary importance. As oil-specific demand shocks are associated with financial market speculative activity, such activity may lead to search-for-yield behavior in emerging market bond markets, and thus reduce emerging market sovereign spreads.

Keywords: Oil prices; Sovereign bonds (search for similar items in EconPapers)
JEL-codes: G12 G15 Q41 Q43 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:128:y:2022:i:c:s0261560622001036

DOI: 10.1016/j.jimonfin.2022.102700

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