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Bond Yields in Emerging Economies: It Matters What State You are in

26 Pages Posted: 1 Nov 2012  

Laura Jaramillo

International Monetary Fund (IMF)

Anke Weber

International Monetary Fund (IMF)

Date Written: August 2012

Abstract

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

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

Laura Jaramillo (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Anke Weber

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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