Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals

Sy, Amadou

doi:10.1016/s1566-0141(02)00043-2

Cited by 117 publications

(37 citation statements)

References 10 publications

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“…There is a large body of literature on the determinants of government bond yield spreads. Bond spreads are generally associated with two main drivers: (i) domestic macroeconomic fundamentals (Aizenman, Hutchison, & Jinjarak, ; Arezki & Brückner, ; Baldacci, Gupta, & Mati, ; Baldacci & Kumar, ; Comelli, ; Costantini, Fragetta, & Melisa, ; Edwards, ; Eichler, ; Hatchondo, Martinez, & Roch, ; Hilscher & Nosbusch, ) and (ii) global conditions on financial markets and international factors (Arora & Cerisola, ; Arslanalp & Poghosyan, ; Bellas, Papaioannou, & Petrova, ; Jaramillo & Tejada, ; Sy, ). The factors considered as important determinants of spreads include GDP growth, fiscal space, public debt, foreign exchange reserves, inflation, crisis episodes, the VIX index, and the FED policy rate.…”

Section: Introductionmentioning

confidence: 99%

Remittances and bond yield spreads in emerging market economies

Balima

Combes

2019

Rev International Economics

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This paper tests whether remittances reduce bond yield spreads in emerging market economies. Drawing upon instrumental variable techniques, our paper reveals that remittance inflows significantly reduce bond yield spreads. This result is robust to different specifications, alternative instrumentation techniques, additional control variables, and the use of credit default swap spreads in place of bond spreads. In addition, we find that the effect of remittances on spreads (i) is larger in (more) poorly developed financial systems, (ii) increases with the degree of trade openness, (iii) is larger in low fiscal space regimes, and (iv) is larger in nonremittance-dependent countries. The paper concludes that policies that improve the measurement of remittance inflows and reduce their transfer costs or that enable countries to develop securitization of remittances and diaspora bonds could help emerging market economies to leverage remittances for international capital market access.

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Section: Introductionmentioning

confidence: 99%

Remittances and bond yield spreads in emerging market economies

Balima

Combes

2019

Rev International Economics

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“…The numeric coding approach has been widely applied in the literature (Sy, ; Kim and Wu, ; Al‐Sakka and Gwilym, ; Hill et al . ).…”

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confidence: 99%

Rating Migrations: The Effect of History and Time

Dang

Partington

2014

Abacus

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We examine the effect of rating history and the passage of time on the rating migration hazard for corporate debt issuers. Controlling for industry effects and the evolution of business and political cycles, the results consistently show that the next change of rating depends more strongly on rating history than it does on the current rating. However, there are significant interactions between the main effects of rating history and the duration of the current rating. The result is substantial decay in the effects of rating history the longer a rating remains unchanged. This decay effect is stronger for downgrades and for ratings in the speculative category.

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“…Both studies found that macroeconomic variables could explain the majority of the spread changes. Sy (2001) further found that for the case of EM issues, published factors (such as credit rating, which relies heavily on economic fundamentals) differ significantly from what is observed in the market (sentiments) in times of fast-changing fundamentals, such as during a crisis.…”

Section: Market Variablesmentioning

confidence: 95%

Announcement Effect on the Credit Spreads of US Dollar Malaysian Bonds

Jin

Gannon

2011

Rev. Pac. Basin Finan. Mark. Pol.

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The main purpose of this paper is to extend the empirical research on the behavior of credit spreads on the USD denominated Malaysian bonds. We find that international political events have more influence on the changes of bond yield spreads from Malaysian USD issues than domestic events. Significant results are consistent across different issues. However, the resignation by the former Prime Minister, Dr Mahathir Mohamad, created a mixed response from the market. Using an error correction model, this study also found that the monetary policy by the US Federal Reserve has a long-term and significant impact on the behavior of the Malaysian USD issues. This study also provides further evidence that the current theoretical framework is sufficient to explain changes in the credit spread of bonds issued by the emerging market.

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Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals

Cited by 117 publications

References 10 publications

Remittances and bond yield spreads in emerging market economies

Remittances and bond yield spreads in emerging market economies

Rating Migrations: The Effect of History and Time

Announcement Effect on the Credit Spreads of US Dollar Malaysian Bonds

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