Global Financial Spillovers to Emerging Market Sovereign Bond Markets

23 Pages Posted: 21 Jul 2015

See all articles by Christian Ebeke

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS

Annette J. Kyobe

International Monetary Fund (IMF)

Date Written: June 2015

Abstract

Foreign holdings of emerging markets (EMs) government bonds have increased substantially over the last decade. While foreign participation in local-currency sovereign bond markets provides an additional source of financing and reduces sovereign yields, it raises concerns about increased sensitivity of yields to shifts in market sentiment. The analysis in this paper suggests that foreign participation and an undiversified investor base transmit global financial shocks to local-currency sovereign bond markets by increasing yield volatility and, beyond a certain threshold, amplify these spillovers. These estimates are robust to a range of econometric techniques including panel smooth threshold regression.

Keywords: Bond markets, Foreign investment, Bond yields, External shocks, Spillovers, Emerging markets, Financial shocks, EM bond markets, Non-linearity, Interest rates, currency, holdings, investors, sovereign bond markets, government bonds

JEL Classification: E43, G01, G15

Suggested Citation

Ebeke, Christian and Kyobe, Annette J., Global Financial Spillovers to Emerging Market Sovereign Bond Markets (June 2015). IMF Working Paper No. 15/141, Available at SSRN: https://ssrn.com/abstract=2633927

Christian Ebeke (Contact Author)

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

Annette J. Kyobe

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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