On International Integration of Emerging Sovereign Bond Markets

35 Pages Posted: 8 Feb 2018 Last revised: 21 Mar 2018

See all articles by Itai Agur

Itai Agur

IMF

Melissa Chan

International Monetary Fund (IMF)

Mangal Goswami

International Monetary Fund (IMF)

Sunil Sharma

George Washington University - Elliott School of International Affairs

Date Written: January 2018

Abstract

The paper investigates the international integration of EM sovereign dollar-denominatedand local-currency bond markets. Factor analysis is used to examine movements insovereign bond yields and common sources of yield variation. The results suggest that EMdollar-denominated sovereign debt markets are highly integrated; a single common factorthat is highly correlated with US and EU interest rates explains, on average, about 80percent of the total variability in yields. EM sovereign local currency bond markets are notas internationally integrated, and three common factors explain about 74 percent of thetotal variability. But a factor highly correlated with US and EU interest rates still explains63 percent of the yield variation accounted for by common factors. That said, there issome diversity among EM countries in the importance of common factors in affectingsovereign debt yields.

Keywords: Emerging markets, International financial markets, Bond markets, Capital flows, Financial Globalization, Safe Assets, Debt Denomination, Factor Analysis, F21, F65, G15, H63, O16, Globalization: Finance

JEL Classification: F21, F65, G15, H63, O16

Suggested Citation

Agur, Itai and Chan, Melissa and Goswami, Mangal and Sharma, Sunil, On International Integration of Emerging Sovereign Bond Markets (January 2018). IMF Working Paper No. 18/18. Available at SSRN: https://ssrn.com/abstract=3120340

Itai Agur (Contact Author)

IMF ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://itaiagur.weebly.com/

Melissa Chan

International Monetary Fund (IMF) ( email )

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

Mangal Goswami

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Sunil Sharma

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

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