Emerging Market Sovereign Bonds

This research project aims to respond to pertinent questions from several players in the financial environment (governments, private and professional investors) relating to the credit rating process of emerging market sovereign bonds and their borrowing costs (i.e. credit spread). In the first part, we investigate whether rating agencies under-rate countries with which they are less familiar from an economic, geographic or cultural point of view. Such a foreign bias is especially harmful for emerging markets who will suffer from higher borrowing costs and a restricted access to international capital markets. In the second part, we apply a survival analysis to estimate rating transition matrices. In the third part, we integrate the obtained knowledge from the first two parts to unravel the credit spreads of emerging market sovereign bonds. We use the information incorporated in corporate bond spreads toexplain sovereign spreads.

Keywords:development finance, credit ratings, bond markets, Emerging markets

Disciplines:Economic development, innovation, technological change and growth