Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals

Amadou Sy

No 2001/165, IMF Working Papers from International Monetary Fund

Abstract: This paper uses a panel data estimation of a simple univariate model of sovereign spreads on ratings to analyze statistically significant deviations from the estimated relationship. We find evidence of an asymmetric adjustment of spreads and ratings when such deviations are significant. In addition, the paper illustrates how significant disagreements between market and rating agencies' views can be used as a signal that further technical and sovereign analysis is warranted. For instance, we find that spreads were "excessively low" for most emerging markets before the Asian crisis. More recently, spreads were "excessively high" for a number of emerging markets.

Keywords: WP; rating; market; emerging market; credit rating; Bond spreads; credit ratings; monitoring; sovereign risk; risk appetite; rating agency; emerging market bond; rating adjustment; market participant; rating downgrade; sovereign spread; rating upgrade; Emerging and frontier financial markets; Securities markets; Yield curve; Bonds; Africa; Global (search for similar items in EconPapers)
Pages: 29
Date: 2001-10-01
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Citations: View citations in EconPapers (20)

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Journal Article: Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals (2002)
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