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Emerging Market Spread Compression: Is it Real or is it Liquidity?

Author

Listed:
  • Ms. Laura E. Kodres
  • Kristian Hartelius
  • Kenichiro Kashiwase
Abstract
Despite recent turmoil, spreads on emerging market countries' sovereign bonds have fallen dramatically since mid-2002. Some have attributed the fall to improved economic fundamentals while others to ample global liquidity. The paper models spreads and attempts to empirically distinguish between the two factors. The results indicate that fundamentals, as embedded in credit ratings, are very important, but that expectations of future U.S. interest rates and volatility in those expectations are also a key determinant of emerging market spreads.

Suggested Citation

  • Ms. Laura E. Kodres & Kristian Hartelius & Kenichiro Kashiwase, 2008. "Emerging Market Spread Compression: Is it Real or is it Liquidity?," IMF Working Papers 2008/010, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/010
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=21546
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    References listed on IDEAS

    as
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