What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?

48 Pages Posted: 10 Jun 2000 Last revised: 7 Jul 2022

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Date Written: February 1998

Abstract

In this paper we analyze data on nearly 1,000 developing-country bonds issued in the years 1991-96 the recent episode of heavy reliance on bonded debt. We analyze both the issue decision of debtors and the pricing decision of investors, minimizing selectivity bias by treating the two issues jointly. Overall, the results confirm that higher credit quality translates into a higher probability of issue and a lower spread. Importantly, however, we find that observed changes in fundamentals explain only a fraction of the spread compression in the period leading up to the recent crisis in emerging markets.

Suggested Citation

Eichengreen, Barry and Mody, Ashoka, What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment? (February 1998). NBER Working Paper No. w6408, Available at SSRN: https://ssrn.com/abstract=226156

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Ashoka Mody

International Monetary Fund (IMF) - Research Department ( email )

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Washington, DC 20431
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202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

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