Emerging Bond Market Volatility and Country Spreads

Seungyeon Won, Young Sup Yun and Byoung Joon Kim

Emerging Markets Finance and Trade, 2013, vol. 49, issue 1, 82-100

Abstract: Using JPMorgan's emerging market bond index, this paper analyzes how increases in country credit spreads can persist in emerging bond markets. The results of T-GARCH regressions show that, during financial crisis periods, emerging countries' credit spreads may increase persistently as a result of interaction between changes in spreads and volatilities, making emerging bond markets more turbulent. The results suggest that emerging countries should endeavor to develop a stabilization mechanism by enhancing information efficiency in bond markets. In particular, because Asian countries have experienced persistent, overreactive volatility, this paper implies that Asian countries should work together more closely during financial crisis periods.

Keywords: country spread; sovereign bonds; T-GARCH model; volatility (search for similar items in EconPapers)
Date: 2013
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