Astonishing insights: emerging market debt spreads throughout the pandemic

Document Type

Article

Source of Publication

Applied Economics

Publication Date

10-3-2021

Abstract

We investigate how Covid-19 affects the emerging market (EM) bonds by analysing, on a standalone basis, investment grade (IG) and high yield (HY) debt per type of issuer. We document evidence that the option-adjusted spreads (OAS) of the IG and HY financials have recovered to the pre-Covid levels by the end of year 2020, while for the HY sovereigns and corporates the OAS remain twice as wide as before the pandemic. The weight of the liquidity component in the OAS for the IG sovereigns has climbed to astonishing 45%. Our results are potentially useful for investors, traders, risk managers and regulators.

Publisher

Taylor & Francis

Disciplines

Business

Keywords

COVID-19 pandemic, Option-adjusted spread (OAS), Liquidity, Emerging markets, Fixed-income

Scopus ID

85118438184

Indexed in Scopus

yes

Open Access

no

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