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Emerging Markets Sovereign Bond Spreads, Credit Ratings and Global Financial Crisis

Erdal Özmen and Özge Doğanay Yaşar

Abstract:
This paper investigates the impacts of sovereign credit ratings and global financial conditions on the evolution of EMBI spreads for a panel of 23 developing countries by using daily data for the period between 1998 and 2012. To this end, we employ not only the conventional panel estimation procedures, but also the recent methods tackling with either cross-sectional dependence stemming from common global shocks or a potential endogeneity. Our results suggest that credit ratings along with global financial conditions are the main determinants of EMBI. The determinants of EMBI are not invariant to speculative and investment grading episodes and transitions between them. The recent global crisis changed the determinants of EMBI and led to credit ratings impact to converge between speculative and investment grading episodes.

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2015

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