Original Sin Redux: Role of Duration Risk

Bertaut, Carol C.; Bruno, Valentina; Shin, Hyun Song

doi:10.2139/ssrn.3820755

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Original Sin Redux: Role of Duration Risk

63 Pages Posted: 7 Apr 2021 Last revised: 6 Jul 2023

See all articles by Carol C. Bertaut

Carol C. Bertaut

Board of Governors of the Federal Reserve System

Valentina Bruno

American University - Department of Finance and Real Estate; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: April 5, 2021

Abstract

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

Bertaut, Carol C. and Bruno, Valentina Giulia and Shin, Hyun Song, Original Sin Redux: Role of Duration Risk (April 5, 2021). Available at SSRN: https://ssrn.com/abstract=3820755 or http://dx.doi.org/10.2139/ssrn.3820755