Determinants of sovereign bond spreads in emerging markets: local fundamentals and global factors vs. ever-changing misalignments

In: IMF working paper 13/164

In: IMF Working Papers

Abstract

We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global r