Uncovering Country Risk in Emerging Market Bond Prices

37 Pages Posted: 3 Aug 2000

See all articles by Erik Durbin

Erik Durbin

Covington & Burling LLP

David T. Ng

Johnson College of Business

Date Written: July 1999


We investigate the role of "country risk" in determining the default risk of firms in emerging markets. In particular, we study the relationship between the secondary market spreads (over hard-currency government bond yields) of bonds issued by emerging market firms and bonds issued by their home governments over the past 3 1/2 years. Our results indicate that market participants do not strictly apply the "sovereign ceiling," under which no firm is more creditworthy than its government. We do find that the spreads of emerging market corporate and government bonds over hard-currency government bonds are highly correlated. The correlation is higher for some industries than for others, and we find no evidence that banks face greater country risk.

Keywords: Credit Rating, Sovereign Ceiling, Default Risk, Emerging Market, Corporate Bond

JEL Classification: F30, F34, G15

Suggested Citation

Durbin, Erik and Ng, David T., Uncovering Country Risk in Emerging Market Bond Prices (July 1999). Available at SSRN: https://ssrn.com/abstract=231843 or http://dx.doi.org/10.2139/ssrn.231843

Erik Durbin (Contact Author)

Covington & Burling LLP ( email )

1201 Pennsylvania Avenue, N.W.
Washington, DC 20004-2401
United States

David T. Ng

Johnson College of Business ( email )

301G Warren Hall, Cornell University
Ithaca, NY 14850-1967
United States
6072550145 (Phone)

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