We investigate the yield spread between the sovereign bonds issued in international markets by major Asia-Pacific issuers (China, Korea, Malaysia, Philippines and Thailand) and matched with near maturity benchmark U.S. Treasury bonds (2, 5, 10 year maturities) to determine the extent that various factors affect changes in credit spreads. The results suggest that the credit spreads of these sovereign bonds tend to be negatively related to changes in interest rates on U.S. benchmark bonds and positively related to changes in the slope of the yield curve. The asset and exchange rate variables were only significant for spreads on Philippine bonds where it was negatively related to changes in the local stock market index, and positively to changes in the exchange rate. The complex dynamics of these processes highlight concerns for portfolio mangers when constructing portfolios of sovereign Asian bonds by aggregating bonds of different credit ratings.
|Number of pages||14|
|Journal||Journal of International Financial Markets, Institutions and Money|
|Publication status||Published - Feb 2006|
- Credit spreads
- GARCH models