DP17946 Cross-Border Investment in Emerging Market Bonds: Stylized Facts and Security-Level Evidence from Europe
We provide stylized facts on nonresident holdings of emerging market bonds and analyze the determinants of euro area investors' purchases of such securities, using a comprehensive security-level dataset that tracks net transactions of individual bonds issued by emerging market economies. Euro area investors show a preference for euro-denominated and sovereign EM bonds. Net purchases tend to be higher when the macroeconomic outlook of the respective EMs improves, and US monetary policy is loosened. Conversely, euro area investors—in particular investment funds—sell emerging market debt when global financial stress is high. In a case study for the BRICS countries, we find that euro area investors treat EM bonds issued through offshore affiliates differently from onshore securities, likely reflecting differences in currency composition. The sell-offs of EM debt in 2018 as well as during the Covid-19 shock only affected securities issued directly by domestic entities while euro area investors held on to securities issued through offshore affiliates.