DP5528 Bloodshed or Reforms? The Determinants of Sovereign Bond Spreads in 1870-1913 and Today

Author(s):	Paolo Mauro, Nathan Sussman, Yishay Yafeh
Publication Date:	March 2006
Keyword(s):	bond yields, emerging markets, financial globalization
JEL(s):	F34, G15, N20
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=5528

Drawing on a newly-collected data set on bond yields, macroeconomic variables, and news of various categories for a panel of emerging markets, we provide the first comparative analysis of the determinants of sovereign bond spreads in the first era of financial globalization and bond finance (1870-1913) and today (1994-2002). We find that news about wars or episodes of politically-motivated violence are a significant and robust determinant of spreads; fiscal variables also play a role; in contrast, news about institutional reforms seldom have a rapid and significant impact. There are also important differences between the two eras: country-specific fundamentals account for a greater share of variation in spreads during the pre-WWI period than today.