The credit spread dynamics of Latin American euro issues in international bond markets

Kannan S. Thuraisamy*, Gerard L. Gannon, Jonathan A. Batten

*Corresponding author for this work

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This paper investigates two important relationships using the sovereign issues made by major Latin American economies in the international bond market: the determinants of credit spread changes using variables derived from structural and macroeconomic theory and the impact of a default episode on the underlying equilibrium dynamics. We find four significant determinants of credit spread changes: an asset and interest rate factor-consistent with structural models of credit spread pricing; the exchange rate-consistent with macroeconomic determinants and the slope of the yield curve-consistent with a business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in the long-run equilibrium dynamics around the Argentine default on the 23 December 2001.

Original languageEnglish
Pages (from-to)328-345
Number of pages18
JournalJournal of Multinational Financial Management
Volume18
Issue number4
DOIs
Publication statusPublished - Oct 2008

Keywords

  • Credit spreads
  • Latin America
  • Long-run dynamics
  • Sovereign bonds
  • Structural models

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