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Sovereign credit and exchange rate risks: evidence from Asia-Pacific local currency bonds

Mikhail Chernov (), Drew Creal and Peter Hördahl ()

No 918, BIS Working Papers from Bank for International Settlements

Abstract: We study the dynamic properties of sovereign bonds in emerging market economies and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.

Keywords: emerging bond markets; credit risk; currency risk; Twin Ds; affine model (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2021-01
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Working Paper: Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds (2020) Downloads
Working Paper: Sovereign Credit and Exchange Rate Risks: Evidence from Asia-Pacific Local Currency Bonds (2020) Downloads
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