Long Run And Short Run Determinants Of Sovereign Bond Yields In Advanced Economies
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Long Run And Short Run Determinants Of Sovereign Bond Yields In Advanced Economies
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Author : Mr.Tigran Poghosyan
language : en
Publisher: International Monetary Fund
Release Date : 2012-11-08
Long Run And Short Run Determinants Of Sovereign Bond Yields In Advanced Economies written by Mr.Tigran Poghosyan and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-11-08 with Business & Economics categories.
We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980-2010 period using panel cointegration techniques. The application of cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long-run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in potential growth rate. In the short-run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe haven” flows.
Long Run And Short Run Determinants Of Sovereign Bond Yields In Advanced Economies
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Author : Tigran Poghosyan
language : en
Publisher:
Release Date : 2015
Long Run And Short Run Determinants Of Sovereign Bond Yields In Advanced Economies written by Tigran Poghosyan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980-2010 period using panel cointegration techniques. The application of the cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in the potential growth rate. In the short run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe-haven” flows.
Foreign Investor Flows And Sovereign Bond Yields In Advanced Economies
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Author : Mr.Serkan Arslanalp
language : en
Publisher: International Monetary Fund
Release Date : 2014-02-11
Foreign Investor Flows And Sovereign Bond Yields In Advanced Economies written by Mr.Serkan Arslanalp and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-02-11 with Business & Economics categories.
Asset allocation decisions of international investors are at the core of capital flows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004-2012. We find that a one percentage point increase in the share of government debt held by foreign investors can explain a 6-10 basis point reduction in long-term sovereign bond yields over the sample period. Accordingly, international flows to core advanced economy bond markets over 2008-12 are estimated to have reduced 10-year government bond yields by 40-65 basis points in Germany, 20-30 basis points in the U.K., and 35-60 basis points in the U.S. In contrast, foreign outflows are estimated to have raised 10-year government bond yields by 40-70 basis points in Italy and 110-180 basis points in Spain during the same period. Our results suggest that the divergence in long-term bond yields between core and periphery economies in the euro area may continue unless the “normalization” of macroeconomic determinants of bond yields is accompanied by a similar “normalization” of the foreign investor base.
Fiscal Deficits Public Debt And Sovereign Bond Yields
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Author : Mr.Manmohan S. Kumar
language : en
Publisher: International Monetary Fund
Release Date : 2010-08-01
Fiscal Deficits Public Debt And Sovereign Bond Yields written by Mr.Manmohan S. Kumar and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-08-01 with Business & Economics categories.
The recent sharp increase in fiscal deficits and government debt in many countries raises questions regarding their impact on long-term sovereign bond yields. While economic theory suggests that this impact is likely to be adverse, empirical results have been less clear cut, have generally ignored nonlinear effects of deficits and debt through some other key determinants of yields, and have been mostly confined to advanced economies. This paper reexamines the impact of fiscal deficits and public debt on long-term interest rates during 1980 - 2008, taking into account a wide range of country-specific factors, for a panel of 31 advanced and emerging market economies. It finds that higher deficits and public debt lead to a significant increase in long-term interest rates, with the precise magnitude dependent on initial fiscal, institutional and other structural conditions, as well as spillovers from global financial markets. Taking into account these factors suggests that large fiscal deficits and public debts are likely to put substantial upward pressures on sovereign bond yields in many advanced economies over the medium term.
Determinants Of Emerging Market Sovereign Bond Spreads
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Author : Iva Petrova
language : en
Publisher: International Monetary Fund
Release Date : 2010-12-01
Determinants Of Emerging Market Sovereign Bond Spreads written by Iva Petrova and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-12-01 with Business & Economics categories.
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.
The Long Run Impact Of Sovereign Yields On Corporate Yields In Emerging Markets
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Author : Delong Li
language : en
Publisher: International Monetary Fund
Release Date : 2021-06-04
The Long Run Impact Of Sovereign Yields On Corporate Yields In Emerging Markets written by Delong Li and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-06-04 with Business & Economics categories.
We analyze the long-run impact of emerging-market sovereign bond yields on corporate bond yields, finding that the average pass-through is around one. The pass-through is larger in countries with greater sovereign risks and where sovereign bonds are more liquid. It is also greater for corporate bonds with lower ratings, shorter maturities, and for those issued by financial companies and government-related firms. Our results support theoretical arguments that corporate and sovereign yields are linked together through credit risks and liquidity premiums. Consequently, high sovereign risks may slowdown growth by persistently increasing private sector borrowing costs.
Determinants Of Sovereign Bond Spreads In Emerging Markets
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Author : Mr.Balazs Csonto
language : en
Publisher: International Monetary Fund
Release Date : 2013-07-10
Determinants Of Sovereign Bond Spreads In Emerging Markets written by Mr.Balazs Csonto and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-07-10 with Business & Economics categories.
We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe marketstress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads.
Real Money Investors And Sovereign Bond Yields
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Author : Laura Jaramillo
language : en
Publisher: International Monetary Fund
Release Date : 2013-12-19
Real Money Investors And Sovereign Bond Yields written by Laura Jaramillo and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-12-19 with Business & Economics categories.
Experience from the global financial crisis suggests that countries’ borrowing costs are not solely determined by macro and fiscal fundamentals. Factors such as ownership structures of government securities, among others, also play a significant role. This paper investigates the effect of “real money investors”—domestic nonbanks and national and foreign central banks—on bond yields for a sample of 45 advanced and emerging market economies. The results show that, while bond yields rise with the debt to GDP ratio, this increase is partly offset if this debt falls in the hands of real money investors. Nonetheless, for some countries there is the risk that such ownership structure could change over the long run, which would impose upward pressure on borrowing costs, especially where fiscal positions are weak.
Bond Yields In Emerging Economies
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Author : Laura Jaramillo
language : en
Publisher: International Monetary Fund
Release Date : 2012-08-01
Bond Yields In Emerging Economies written by Laura Jaramillo and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-08-01 with Business & Economics categories.
While many studies have looked into the determinants of yields on externally issued sovereign bonds of emerging economies, analysis of domestically issued bonds has hitherto been limited, despite their growing relevance. This paper finds that the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion. During tranquil times in global markets, fiscal variables do not seem to be a significant determinant of domestic bond yields in emerging economies. However, when market participants are on edge, they pay greater attention to country-specific fiscal fundamentals, revealing greater alertness about default risk.
Spillovers From U S Monetary Policy Normalization On Brazil And Mexico S Sovereign Bond Yields
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Author : Carlos Góes
language : en
Publisher: International Monetary Fund
Release Date : 2017-03-10
Spillovers From U S Monetary Policy Normalization On Brazil And Mexico S Sovereign Bond Yields written by Carlos Góes and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-03-10 with Business & Economics categories.
This paper examines the transmission of changes in the U.S. monetary policy to localcurrency sovereign bond yields of Brazil and Mexico. Using vector error-correction models, we find that the U.S. 10-year bond yield was a key driver of long-term yields in these countries, and that Brazilian yields were more sensitive to U.S. shocks than Mexican yields during 2010–13. Remarkably, the propagation of shocks from U.S. long-term yields was amplified by changes in the policy rate in Brazil, but not in Mexico. Our counterfactual analysis suggests that yields in both countries temporarily overshot the values predicted by the model in the aftermath of the Fed’s “tapering” announcement in May 2013. This study suggests that emerging markets will need to contend with potential spillovers from shifts in monetary policy expectations in the U.S., which often lead to higher government bond interest rates and bouts of volatility.