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Essays on Emerging Market and Frontier Market Bonds

Delvaux, Joe (2024). Essays on Emerging Market and Frontier Market Bonds. (Unpublished Doctoral thesis, City, University of London)


This thesis presents three research papers in the field of emerging market (EM) finance and provides an analysis of frontier market (FM) bond markets, covering both local currency bonds and sovereign Eurobonds. Using empirical analysis, these papers identify the factors that impact such bonds’ prices/yields and whether an increase in liquid EM credit default swap (CDS) contracts can be a lead indicator for sovereign FM Eurobond yields.

The first paper investigates the impact of local and global macroeconomic factors on Eurobonds and local currency bonds issued in sub-Saharan Africa (SSA) at different points on the yield curve. The study used a unique proprietary dataset. The results show that a country’s local monetary policy interest rate and its trade balance impact both local currency bond yields and Eurobonds; global risk aversion, as proxied by the Volatility Index, impacts only the Eurobonds, especially those issued by commodity-importing countries; and the explanatory power of most of our models is high.

The second paper analyses whether FM bonds are more affected by the International Monetary Fund’s (IMF’s) macroeconomic forecast changes than the more financially developed EM bond markets, given that there are greater challenges in terms of the availability and quality of macroeconomic data. The study utilised a daily bond return dataset, applying unbalanced panel regression within the context of an event study methodology. The IMF’s macro forecast changes were found to have no significant effect on the FM sample, implying that the level of financial development of the individual country does not impact the results. This suggests that IMF forecast changes may well be embedded prior to the database release.

The final paper investigates whether benchmark EM sovereign CDS prices have a leading effect on FM sovereign Eurobond yields, using SSA Eurobonds as the sample FM and the following EM CDS: Brazil, China, Itraxx Asia (excluding Japan’s CDS index), South Africa and Russia. By applying the Baba, Engel, Kraft and Kroner model, our analysis demonstrates that the volatility spillover from the relatively more liquid EM CDS price changes exerts a leading effect on FM Eurobond yields. In 39.1% of the cases, and when augmenting the pair model from a 2x2 to a 7x7 model to capture the potential spillover effect from a higher number of variables, we find that the signs and multiplier remain the same. In the sample, South Africa’s and Turkey’s CDS prices are the most consistent leading indicators for SSA Eurobond yields.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Bayes Business School Doctoral Theses
Bayes Business School > Finance
Doctoral Theses
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