Local Currency Sovereign Risk

• 成果类型: Article
• 署名作者: Du, Wenxin; Schreger, Jesse
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Princeton University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12389
• 发表日期: 2016
• 页码: 1027-1069
• 关键词: Covered interest parity; Yield spreads; MARKETS; liquidity; DYNAMICS; premia; rates; price; debt

摘要

We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk-free rate constructed using cross-currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign-currency-denominated debt, local currency credit spreads have lower means, lower cross-country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit spread differentials, including positively correlated credit and currency risk, selective default, capital controls, and various financial market frictions.