Sovereign cite Ratings and Spreads in Emerging Markets: Does investment Grade Matter?
Laura Jaramillo and Catalina Michelle Tejada
© International Monetary Fund
WP/11/44
IMF functional root Western Hemisphere Department Sovereign Credit Ratings and Spreads in Emerging Markets: Does Investment Grade Matter? wide-awake by Laura Jaramillo and Catalina Michelle Tejada1 Authorized for distribution by David Vegara March 2011 countermand Sovereign investment outrank status is often associated with disdain spreads in international markets. Using a panel example for 35 emerging markets between 1997 and 2010, this paper finds that investment grade status reduces spreads by 36 percent, above and beyond what is implied by macroeconomic fundamentals. This compares to a 5-10 percent reduction in spreads interest upgrades within the investment grade asset class, and no shock for movements within the speculative grade asset class, ceteris paribus. While world(prenominal) financial conditions play a central role in determining spreads, market sentiment improves with lower external in the public eye(predicate) debt to GDP levels and higher domestic growth rates. JEL Classification poesy: E44, F30, F34, G15, H63 Keywords: Credit Ratings, Sovereign Debt, Rating Agencies, Emerging Markets Authors E-Mail Address: ljaramillomayor@imf.org, mtejada@imf.
org
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe search in build up by the author(s) and are published to elicit comments and to further debate.
1
The authors propensity to thank Mario Dehesa for valuable comments to an earlier version of the paper; Gaston Gelos, David Vegara, and Rodrigo Valdes for their utile suggestions; and participants at the Western Hemisphere Department seminar on this research for their helpful comments.
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