Discussion paper

DP14986 Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds

We study the dynamic properties of sovereign bonds in emerging markets and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.

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Citation

Chernov, M, D Creal and P Hördahl (2020), ‘DP14986 Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds‘, CEPR Discussion Paper No. 14986. CEPR Press, Paris & London. https://cepr.org/publications/dp14986

Exchange rates
VoxEU Column

Institutional investors hedging of foreign exchange risk from investing in equities abroad can affect the exchange rate

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  • Exchange Rates
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  • Financial Markets