26 Pages Posted: 1 Nov 2012
Date Written: August 2012
While many studies have looked into the determinants of yields on externally issued sovereign bonds of emerging economies, analysis of domestically issued bonds has hitherto been limited, despite their growing relevance. This paper finds that the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion. During tranquil times in global markets, fiscal variables do not seem to be a significant determinant of domestic bond yields in emerging economies. However, when market participants are on edge, they pay greater attention to country-specific fiscal fundamentals, revealing greater alertness about default risk.
Keywords: Emerging Market Economies, Fiscal Deficit, Public Debt, Bonds, Economic Models
JEL Classification: E44, E62, G15, H63, O16
Suggested Citation: Suggested Citation
Jaramillo, Laura and Weber, Anke, Bond Yields in Emerging Economies: It Matters What State You are in (August 2012). IMF Working Paper No. 12/198. Available at SSRN: https://ssrn.com/abstract=2169744