Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals

29 Pages Posted: 11 Dec 2001

See all articles by Amadou Nicolas Racine Sy

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Date Written: October 2001

Abstract

This paper uses a panel data estimation of a simple univariate model of sovereign spreads on ratings to analyze statistically significant deviations from the estimated relationship. We find evidence of an asymmetric adjustment of spreads and ratings when such deviations are significant. In addition, the paper illustrates how significant disagreements between market and rating agencies' views can be used as a signal that further technical and sovereign analysis is warranted. For instance, we find that spreads were "excessively low" for most emerging markets before the Asian crisis. More recently, spreads were "excessively high" for a number of emerging markets.

Keywords: Bond Spreads, credit ratings, monitoring, sovereign risk, risk appetite

JEL Classification: G15, G20, F3

Suggested Citation

Sy, Amadou Nicolas Racine, Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals (October 2001). IMF Working Paper No. 01/165, Available at SSRN: https://ssrn.com/abstract=292954 or http://dx.doi.org/10.2139/ssrn.292954

Amadou Nicolas Racine Sy (Contact Author)

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