Bond yields in emerging economies: It matters what state you are in |
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| Institution: | 1. Department of Economic Theory, Universitat de Barcelona, 08034 Barcelona, Spain;2. Department of Quantitative Economics, Universidad Complutense de Madrid, 28223 Madrid, Spain;1. European Stability Mechanism, 6a Circuit de la Foire Internationale, 1347 Luxembourg, Luxembourg;2. Bank of Canada, 234 Laurier Avenue West, Ottawa, ON K1A 0G9, Canada;1. Department of Economics and Finance, Brunel University, Uxbridge, UB8 3PH, United Kingdom;2. Department of Economics and Statistics, University of Salerno, Via Ponte Don Melillo, 84084 Fisciano, SA, Italy;3. ISCTE – IUL, Business Research Unit (UNIDE-IUL), Instituto Universitario de Lisboa, Portugal;4. Department of Economics, Social Sciences Building, City University London, Whiskin Street, London EC1R 0JD, United Kingdom;1. Eastern Mediterranean University, North Cyprus, Turkey;2. Federal College of Education (Technical), Potiskum, Yobe State, Nigeria;3. Montpellier Business School, University of Montpellier, Montpellier Research in Management, Montpellier, France;4. University of Nebraska-Omaha, USA;1. Central Bank of Chile, Agustinas 1180, Santiago, Chile;2. Toulouse School of Economics, Universityof Toulouse Capitole, CRM, France |
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| Abstract: | 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 more attention to country-specific fiscal fundamentals, revealing greater alertness about default risk. |
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