The Term Structure of Sovereign Spreads in Emerging Markets PDF Download

Author: Katia Rocha
Publisher:
ISBN:
Category : Default (Finance)
Languages : en
Pages : 38

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Book Description

Author: Katia Rocha
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
This paper proposes a simple structural model to estimate the term structure of sovereign spreads and the implied default probability of a selected group of emerging countries, which accounts for more than 50% of the J. P. Morgan EMBIG index. The real exchange rate dynamics, modeled as a pure diffusion process, are assumed to trigger default event. By relaxing the hypothesis of market completeness, the calibrated model generates sovereign spread curves consistent with market data, giving average deviations below 30 (Mexico, Russia and Turkey) or 60 (Brazil) basis points over time. We show the robustness of the model and argue that the criticism of structural models for underestimating the magnitude of market spreads should be reconsidered. The results suggest that the market tends to overprice the spreads for Brazil, whereas for Mexico, Russia and Turkey the model reproduces the market behavior.

Author: Katia Rocha
Publisher:
ISBN:
Category :
Languages : en
Pages : 21

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Book Description
This paper proposes a simple structural model to estimate the term structure of sovereign spreads and the implied default probability of a selected group of emerging countries, which accounts for more than 50% of the J. P. Morgan EMBIG index.The real exchange rate dynamics, modeled as a pure diffusion process, are assumed to trigger default event. By relaxing the hypothesis of market completeness, the calibrated model generates sovereign spread curves consistent with market data, giving average deviations below 30 (Mexico, Russia and Turkey) or 60 (Brazil) basis points over time. We show the robustness of the model and argue that the criticism of structural models for underestimating the magnitude of market spreads should be reconsidered. The results suggest that the market tends to overprice the spreads for Brazil, whereas for Mexico, Russia and Turkey the model reproduces the market behavior.

Author: Iva Petrova
Publisher: International Monetary Fund
ISBN: 1455252859
Category : Business & Economics
Languages : en
Pages : 28

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Book Description
This paper analyses the determimants of emerging market sovereign bond spreads by examining the short and long-run effects of fundamental (macroeconomic) and temporary (financial market) factors on these spreads. During the current global financial and economic crisis, sovereign bond spreads widened dramatically for both developed and emerging market economies. This deterioration has widely been attributed to rapidly growing public debts and balance sheet risks. Our results indicate that in the long run, fundamentals are significant determinants of emerging market sovereign bond spreads, while in the short run, financial volatility is a more important determinant of sperads than fundamentals indicators.

Author: Marco Shinobu Matsumura
Publisher:
ISBN:
Category :
Languages : en
Pages :

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The objective of our work is to study the term structure of interest rates and the sovereign credit spreads of emerging markets. We develop a model from term structure, credit risk and vector autoregressive models, based on the articles by Ang and Piazzesi (2003) and Ang, Dong and Piazzesi (2005). Those article's principal innovation is to include and study the relation among macroeconomic variables and state variables of conventional term structure models. Our contributions include simplifying their model, propose a new estimation method, add credit risk, and show results for Brazilian domestic and external markets.

Author: Marco Shinobu Matsumura
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Our objective is to implement a credit risk pricing model for sovereign bonds and estimate the model for a historical series of yields of emerging markets bonds. We use a reduced model with a Vasicek 2-factor model on Brazilian sovereign data. The estimation occurs in two stages. Using Maximum Likelihood, we first estimate the parameters corresponding to the reference curve. Then, we find the estimates of the set of parameters corresponding to the defaultable curve conditional on the default- free parameters. The estimated model is used to calculate the dynamics of the term structure of interest rates, of credit spreads and of default probabilities.

Author: Cristina Arellano
Publisher:
ISBN:
Category :
Languages : en
Pages :

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This paper studies the maturity composition and the term structure of interest rate spreads of government debt in emerging markets. In the data, when interest rate spreads rise, debt maturity shortens and the spread on short-term bonds is higher than on long-term bonds. To account for this pattern, we build a dynamic model of international borrowing with endogenous default and multiple maturities of debt. Short-term debt can deliver higher immediate consumption than long-term debt; large long-term loans are not available because the borrower cannot commit to save in the near future towards repayment in the far future. However, issuing long-term debt can insure against the need to roll-over short-term debt at high interest rate spreads. The trade-off between these two benefits is quantitatively important for understanding the maturity composition in emerging markets. When calibrated to data from Brazil, the model matches the dynamics in the maturity of debt issuances and its co-movement with the level of spreads across maturities.

Author: Alena Audzeyeva
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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This study investigates the term-structure of sovereign emerging market yield spreads by decomposing it into the default risk component and the residual risk premium for Eurobonds of Mexico, Colombia and Brazil. We find that the risk premium tends to increase with maturity and account for the majority of the yield spread at all maturities for all three countries. The predominantly large, non-flat risk premium curve considerably modifies the yield spread term-structure which is implied by expected default losses. The risk premium and also its share within the yield spread both however vary considerably over time. The variation in risk premium changes is driven by common global and regional market risks. The relative impact of common market factors differs at short, medium and long maturities which is important in explaining risk premium dynamics that varies with bond maturity.

Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
ISBN: 1484359623
Category : Business & Economics
Languages : en
Pages : 54

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This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.

Author: Sebastian Edwards
Publisher: University of Chicago Press
ISBN: 0226184722
Category : Business & Economics
Languages : en
Pages : 366

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Book Description
The 1990s witnessed several acute currency crises among developing nations that invariably spread to other nearby at-risk countries. These episodes—in Mexico, Thailand, South Korea, Russia, and Brazil—were all exacerbated by speculative foreign investments and high-volume movements of capital in and out of those countries. Insufficient domestic controls and a sluggish international response further undermined these economies, as well as the credibility of external oversight agencies like the International Monetary Fund. This timely volume examines the correlation between volatile capital mobility, currency instability, and the threat of regional contagion, focusing particular attention on the emergent economies of Latin America, Southeast Asia, and Eastern Europe. Together these studies offer a new understanding of the empirical relationship between capital flows, international trade, and economic performance, and also afford key insights into realms of major policy concern.