Exchange rate risk and local currency sovereign bond yields in emerging markets

Blaise Gadanecz, Ken Miyajima and Chang Shu

No 474, BIS Working Papers from Bank for International Settlements

Abstract: In this paper we consider the role of exchange rate risk in influencing local currency sovereign bond yields in emerging market economies (EMEs). We explicitly account for exchange rate expectations and uncertainty around them, as measured by exchange rate volatility. The analysis points to an important influence of exchange rate risk: when exchange rate volatility increases, investors require a larger yield compensation for holding EME local currency sovereign bonds. The impact of exchange rate volatility has become more important since May 2013, when investors realised that the Federal Reserve may reduce the scale of its asset purchases sooner than previously expected.

Keywords: emerging markets; exchange rate risk; local currency sovereign bond yields (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-12
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.bis.org/publ/work474.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work474.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:474

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().