Original Sin Redux: Role of Duration Risk
63 Pages Posted: 7 Apr 2021 Last revised: 6 Jul 2023
Date Written: April 5, 2021
We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of US investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates roll-over risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics from the nonbank financial sector.
Keywords: Emerging Markets, US Dollar, Duration Risk, Sovereign Debt, Mutual Funds.
JEL Classification: F65, G23, H63
Suggested Citation: Suggested Citation