Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads

The authors offer evidence that U.S. interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over U.S. benchmark treasuries and therefore on their cost of capital. Their analysis improves on the existing literature and understanding by addressi...

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Main Authors:	Dailami, Mansoor, Masson, Paul R., Padou, Jean Jose
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ABATEMENT AUTOREGRESSION BALANCE OF PAYMENTS BANK LOANS BANK OF ENGLAND BENCHMARK BONDS BORROWING BUSINESS CYCLES CAPITAL FLOWS CAPITAL MARKETS CONTAGION COST OF CAPITAL CREDIT RISK DEBT DEVALUATION DEVELOPMENT ECONOMICS ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC OUTLOOK ECONOMIC RESEARCH EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPORTS FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL MARKETS FINANCIAL STABILITY FORECASTS FOREIGN EXCHANGE GAME THEORY GDP GLOBAL INTEREST IMPORTS INCOME INFLATION INTEREST RATE INTEREST RATES LEADING INDICATORS LIQUIDITY M1 M2 MACROECONOMIC CONDITIONS MACROECONOMIC MODELS MACROECONOMICS MARKET ECONOMIES MARKET PRICES MATURITIES MONETARY POLICY MONEY SUPPLY NATIONAL INCOME OIL PROBABILITY OF DEFAULT PROGRAMS RESERVES RISK NEUTRAL SECURITIES SOLVENCY SUSTAINABILITY TIME SERIES
Online Access:	http://documents.worldbank.org/curated/en/2005/06/5846847/global-monetary-conditions-versus-country-specific-factors-determination-emerging-market-debt-spreads http://hdl.handle.net/10986/8224

id	okr-10986-8224
recordtype	oai_dc
spelling	okr-10986-82242021-04-23T14:02:42Z Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads Dailami, Mansoor Masson, Paul R. Padou, Jean Jose ABATEMENT AUTOREGRESSION BALANCE OF PAYMENTS BANK LOANS BANK OF ENGLAND BENCHMARK BONDS BORROWING BUSINESS CYCLES CAPITAL FLOWS CAPITAL MARKETS CONTAGION COST OF CAPITAL CREDIT RISK DEBT DEVALUATION DEVELOPMENT ECONOMICS ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC OUTLOOK ECONOMIC RESEARCH EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPORTS FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL MARKETS FINANCIAL STABILITY FORECASTS FOREIGN EXCHANGE GAME THEORY GDP GLOBAL INTEREST IMPORTS INCOME INFLATION INTEREST RATE INTEREST RATES LEADING INDICATORS LIQUIDITY M1 M2 MACROECONOMIC CONDITIONS MACROECONOMIC MODELS MACROECONOMICS MARKET ECONOMIES MARKET PRICES MATURITIES MONETARY POLICY MONEY SUPPLY NATIONAL INCOME OIL PROBABILITY OF DEFAULT PROGRAMS RESERVES RISK NEUTRAL SECURITIES SOLVENCY SUSTAINABILITY TIME SERIES The authors offer evidence that U.S. interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over U.S. benchmark treasuries and therefore on their cost of capital. Their analysis improves on the existing literature and understanding by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes and by recognizing nonlinearities in the link between U.S. interest rates and emerging market bond spreads, as the level of interest rates affect the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in U.S. interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in spreads. Simulations of a 200 basis points (bps) increase in U.S. interest rates show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios. This would be in addition to the increase in the benchmark U.S. 10 year Treasury rate. 2012-06-15T21:39:42Z 2012-06-15T21:39:42Z 2005-06 http://documents.worldbank.org/curated/en/2005/06/5846847/global-monetary-conditions-versus-country-specific-factors-determination-emerging-market-debt-spreads http://hdl.handle.net/10986/8224 English Policy Research Working Paper; No. 3626 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ABATEMENT AUTOREGRESSION BALANCE OF PAYMENTS BANK LOANS BANK OF ENGLAND BENCHMARK BONDS BORROWING BUSINESS CYCLES CAPITAL FLOWS CAPITAL MARKETS CONTAGION COST OF CAPITAL CREDIT RISK DEBT DEVALUATION DEVELOPMENT ECONOMICS ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC OUTLOOK ECONOMIC RESEARCH EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPORTS FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL MARKETS FINANCIAL STABILITY FORECASTS FOREIGN EXCHANGE GAME THEORY GDP GLOBAL INTEREST IMPORTS INCOME INFLATION INTEREST RATE INTEREST RATES LEADING INDICATORS LIQUIDITY M1 M2 MACROECONOMIC CONDITIONS MACROECONOMIC MODELS MACROECONOMICS MARKET ECONOMIES MARKET PRICES MATURITIES MONETARY POLICY MONEY SUPPLY NATIONAL INCOME OIL PROBABILITY OF DEFAULT PROGRAMS RESERVES RISK NEUTRAL SECURITIES SOLVENCY SUSTAINABILITY TIME SERIES
spellingShingle	ABATEMENT AUTOREGRESSION BALANCE OF PAYMENTS BANK LOANS BANK OF ENGLAND BENCHMARK BONDS BORROWING BUSINESS CYCLES CAPITAL FLOWS CAPITAL MARKETS CONTAGION COST OF CAPITAL CREDIT RISK DEBT DEVALUATION DEVELOPMENT ECONOMICS ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC OUTLOOK ECONOMIC RESEARCH EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPORTS FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL MARKETS FINANCIAL STABILITY FORECASTS FOREIGN EXCHANGE GAME THEORY GDP GLOBAL INTEREST IMPORTS INCOME INFLATION INTEREST RATE INTEREST RATES LEADING INDICATORS LIQUIDITY M1 M2 MACROECONOMIC CONDITIONS MACROECONOMIC MODELS MACROECONOMICS MARKET ECONOMIES MARKET PRICES MATURITIES MONETARY POLICY MONEY SUPPLY NATIONAL INCOME OIL PROBABILITY OF DEFAULT PROGRAMS RESERVES RISK NEUTRAL SECURITIES SOLVENCY SUSTAINABILITY TIME SERIES Dailami, Mansoor Masson, Paul R. Padou, Jean Jose Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
relation	Policy Research Working Paper; No. 3626
description	The authors offer evidence that U.S. interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over U.S. benchmark treasuries and therefore on their cost of capital. Their analysis improves on the existing literature and understanding by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes and by recognizing nonlinearities in the link between U.S. interest rates and emerging market bond spreads, as the level of interest rates affect the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in U.S. interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in spreads. Simulations of a 200 basis points (bps) increase in U.S. interest rates show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios. This would be in addition to the increase in the benchmark U.S. 10 year Treasury rate.
format	Publications & Research :: Policy Research Working Paper
author	Dailami, Mansoor Masson, Paul R. Padou, Jean Jose
author_facet	Dailami, Mansoor Masson, Paul R. Padou, Jean Jose
author_sort	Dailami, Mansoor
title	Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
title_short	Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
title_full	Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
title_fullStr	Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
title_full_unstemmed	Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads
title_sort	global monetary conditions versus country-specific factors in the determination of emerging market debt spreads
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2005/06/5846847/global-monetary-conditions-versus-country-specific-factors-determination-emerging-market-debt-spreads http://hdl.handle.net/10986/8224
_version_	1764407357512613888

Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads

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