Determinants of Asia-Pacific Government Bond Yields

11 Pages Posted: 22 May 2019

See all articles by Mikhail Chernov

Mikhail Chernov

UCLA Anderson

Drew Creal

University of Notre Dame

Peter Hördahl

Bank for International Settlements (BIS) - BIS Representative Office for Asia and the Pacific

Date Written: April 2019

Abstract

This paper examines the dynamic properties of Asia-Pacific local currency sovereign bond yields and risk premiums. We focus, in particular, on the properties and interactions of components of bond risk premiums that are due to credit spreads and exchange rates. We find that local variables are significant in explaining the dynamics of these components. In particular, the credit risk premium component is, unsurprisingly, mostly affected by a factor that reflects local sovereign credit risk, while the currency risk premium component is affected by the credit factor as well as by the difference in the interest rate level between the local and US yield curves. Moreover, we find that, quantitatively, local variables play a large role in explaining the variation in the credit and currency risk premium components.

Full Publication: Asia-Pacific Fixed Income Markets: Evolving Structure, Participation and Pricing

Keywords: emerging market bonds, bond risk premia, currency risk, credit risk

JEL Classification: F30, G12, G15

Suggested Citation

Chernov, Mikhail and Creal, Drew and Hoerdahl, Peter, Determinants of Asia-Pacific Government Bond Yields (April 2019). BIS Paper No. 102c, Available at SSRN: https://ssrn.com/abstract=3390920

Mikhail Chernov (Contact Author)

UCLA Anderson ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Drew Creal

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Peter Hoerdahl

Bank for International Settlements (BIS) - BIS Representative Office for Asia and the Pacific ( email )

78th floor, Two International Finance Centre
8 Finance Street, Central
Hong Kong

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