Emerging Market Spread Compression: Is it Real or is it Liquidity?

Laura Kodres, Kristian Hartelius and Kenichiro Kashiwase

No 2008/010, IMF Working Papers from International Monetary Fund

Abstract: Despite recent turmoil, spreads on emerging market countries' sovereign bonds have fallen dramatically since mid-2002. Some have attributed the fall to improved economic fundamentals while others to ample global liquidity. The paper models spreads and attempts to empirically distinguish between the two factors. The results indicate that fundamentals, as embedded in credit ratings, are very important, but that expectations of future U.S. interest rates and volatility in those expectations are also a key determinant of emerging market spreads.

Keywords: WP; future; emerging market; EMBI; interest rate (search for similar items in EconPapers)
Pages: 36
Date: 2008-01-01
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Citations: View citations in EconPapers (88)

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