Governed by the cycle: interest rate sensitivity of emerging market corporate debt

Mariya Gubareva () and Maria Rosa Borges ()
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Mariya Gubareva: Lisbon Accounting and Business School (ISCAL-IPL)
Maria Rosa Borges: Lisbon School of Economics and Management (ISEG-UL), Universidade de Lisboa

Annals of Operations Research, 2022, vol. 313, issue 2, No 18, 1019 pages

Abstract: Abstract This study addresses interest rate sensitivity of emerging market corporate debt. Previous research suggests that interest rate sensitivity of corporate bonds depends on residual maturity of issues, creditworthiness of issuers, embedded options and other idiosyncratic factors. However, the dependence of interest rate sensitivity on phases of the business cycle has not received an appropriate academic attention. This paper provides empirical evidence and theoretical interpretation of a dichotomy of interest rate sensitivity across the phases of the cycle, and sheds light on how credit spreads respond to interest rates. The historical span of the research covers the period of 2004–2016. The findings imply that hedging interest rate risk ought to be a dynamic process and take into consideration where the economy is positioned in the current business cycle. This research provides important insights on the nature of interest rate sensitivity, capable of enhancing financial stability and improving efficiency of financial system.

Keywords: Fixed income; Downside risk management; Emerging markets; Corporate debt; Interest rate sensitivity; Capital gains (search for similar items in EconPapers)
JEL-codes: E43 G11 G12 G15 G20 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10479-021-03972-x

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