بازده اوراق قرضه در اقتصادهای نوظهور: رویکرد دولت متبوع شما در این زمینه حائز اهمیت است

While many studies have looked into the determinants of yields on externally issued sovereign bonds of emerging economies, analysis of domestically issued bonds has hitherto been limited, despite their growing relevance. This paper finds that the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion. During tranquil times in global markets, fiscal variables do not seem to be a significant determinant of domestic bond yields in emerging economies. However, when market participants are on edge, they pay more attention to country-specific fiscal fundamentals, revealing greater alertness about default risk.

Domestic sovereign debt markets in emerging economies have grown markedly and currently represent governments' main source of financing (Bank for International Settlements, 2007, Burger et al., 2010 and Mihaljek et al., 2002). While many studies have looked into the determinants of the yields of externally issued sovereign bonds of emerging economies, the analysis of domestically issued bonds has hitherto been limited, despite their growing relevance (Peiris, 2010). The aim of the present paper is to shed some light on the determinants of long-term domestic bond yields in emerging markets, with a particular focus on the impact of fiscal policy and global risk aversion. Since the theoretical literature is inconclusive about the sign of the effect of fiscal policy on long-term domestic bond yields, the question of its impact becomes very much an empirical one (Friedman, 2006). In theory, the effect of a fiscal expansion on domestic interest rates depends on the reaction of domestic private saving and the size and openness of the economy. If households are Ricardian, then a rise in government debt that leads to an anticipation of future tax hikes would be offset by a rise in private savings, thereby leaving long-term rates unchanged (Barro, 1974). If non-Ricardian features are instead incorporated, then an increase in the fiscal deficit and public debt would, all else equal, drive up long term bond-yields (Blinder and Solow, 1973 and Modigliani, 1961). Another approach stresses the importance of international capital mobility, claiming that in an open economy fiscal policy will not affect interest rates except indirectly through its impact on the risk premium (Mundell, 1963): In an environment where there is a large amount of uncertainty relating to the growth prospects of the economy, larger deficits and public debt could also raise concerns about the ability of the sovereign to repay its debts, lifting risk premia and therefore the government's long-term financing costs. A vast empirical literature exists on the determinants of long-term bond yields in advanced economies, with a majority of papers finding that higher fiscal deficits and public debt raise interest rates. While many studies employ U.S. data, there is now also an increasing literature that focuses on European and OECD data. Gale and Orszag (2003) report that out of 59 studies, 29 find that weaker fiscal variables increase interest rates, while 11 had mixed results and 19 found that the effect was not significant. Moreover, a majority of studies finds that the effect of fiscal policy on interest rates is larger when the fiscal deficit rather than public debt is included as an explanatory variable (Faini, 2006 and Laubach, 2009). In addition, the effects of fiscal policy are larger when expectations of future fiscal policy rather than actual values of the debt and deficit are used (Laubach, 2009) and when single country studies rather than cross country studies are performed. The estimated impact on interest rates of a change of 1% of GDP in the fiscal deficit ranges from 10 basis points to 60 basis points (Laubach, 2009). The estimated impact of a change of 1% of GDP in the debt ratio on interest rates ranges from 1 to 8 basis points (Haugh et al., 2009). Studies analyzing the determinants of sovereign foreign currency spreads in emerging markets are also widespread. For foreign currency spreads, many empirical studies have looked at the impact of domestic factors, including indicators of external vulnerability like external debt, debt service or current account (Cantor and Packer, 1996 and Edwards, 1984); fiscal variables, like fiscal debt and deficits (Cantor and Packer, 1996 and Rowland and Torres, 2004) or their composition (Akitoby and Stratmann, 2008); and other macroeconomic variables like inflation, the terms of trade and the real exchange rate (Min, 1998). Far fewer studies have focused on emerging market domestic sovereign bonds, notwithstanding their growing relevance as a source of government financing. Peiris (2010) conducts a panel analysis of 10 emerging market economies using quarterly data and finds that the annualized impact on long-term bond yields of a 1% increase in the fiscal balance-to-GDP ratio is about 20 basis points, while domestic monetary aggregates and real economic activity do not have a significant impact. Moreover, long term yields are found to respond to changes in policy interest rates, inflationary expectations, and foreign participation in domestic bond markets. Baldacci and Kumar (2010) estimate a panel of 31 advanced and emerging economies over the period 1980–2007 and also find that higher fiscal deficits and public debt raise long-term domestic bond yields in both advanced and emerging markets, with an impact similar to that found by Peiris (2010). Baldacci and Kumar (2010) also find that countries with higher initial fiscal deficits and public debt experience larger increases in bond yields when the fiscal position deteriorates. Based on monthly observations of annual data, Miyajima et al. (2012) show that domestic factors, including expectations of the short-term interest rates and the fiscal balance, have tended to dictate the dynamics of the emerging market local currency government yield. Meanwhile, the effect of global risk aversion on financing costs in emerging economies has hitherto typically been analyzed within the context of the literature on the determinants of sovereign foreign currency spreads. McGuire and Schrijvers (2003) find that global risk aversion is a significant factor driving spreads, while Eichengreen and Mody (2000) and Bellas et al. (2010) show that changes in market sentiment affect spreads. Gonzalez-Rozada and Levy-Yeyati (2008) find that in addition to global risk aversion, global liquidity plays a central role. Hartelius et al. (2008) and Dailami et al. (2008) provide similar results when looking at U.S. interest rates. For domestic bond yields, Baldacci and Kumar (2010) find that in periods of financial distress—defined as periods of high levels of the VIX index, high inflationary pressures, and more adverse global liquidity conditions—fiscal deterioration has a larger impact on bond yields. The VIX threshold used in their analysis is chosen exogenously. This paper investigates how the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion. This is proxied by the Chicago Board Options Exchange Volatility Index (VIX) which is a measure of the market's expectation of stock-market volatility over the next 30-day period and is a weighted blend of prices for a range of options on the S&P 500 index. The paper develops a novel high-frequency panel dataset for 26 emerging economies between 2005 and 2011. In addition to monthly observations for long-term emerging market domestic bond yields, it includes monthly vintages of one-year ahead market expectations for annual deficit-to-GDP ratios, debt-to-GDP ratios, inflation, and real GDP growth, which are expected to be more relevant than ex-post outcomes in driving bond yields (Laubach, 2009). Moreover, drawing on the more extensive literature on advanced economies (see for example Gale and Orszag (2003)), the paper uses this dataset to explore the determinants of emerging market domestic bond yields, focusing on the role of fiscal variables. The paper then extends the basic model specification using a panel threshold model to better account for the effect that a shift in global market sentiment can have on investors' assessment of credit risk. This model allows the explanatory variables to have differing regression slopes depending on whether global risk aversion is above or below a certain threshold, endogenously chosen to maximize the fit of the model (Hansen, 1996 and Hansen, 2000). The motivation for exploring the behavior of bond yields in low and high global risk environments draws on the financial literature and the estimation of time-varying βs (the asset's sensitivity to market risk) when determining an optimal portfolio under the capital asset pricing model (CAPM). Evidence on the state dependency of the βs has been found for both advanced ( Audrino and De Giorgi, 2007, Brooks et al., 2002, Galagedera and Faff, 2004 and Huang, 2001) and emerging economies ( Chen and Huang, 2007, Johansson, 2009 and Korkmaz et al., 2010). To the best of our knowledge, this paper is the first one to apply a panel threshold model in this particular context. Results show that, when global risk aversion is low, domestic bond yields are mostly influenced by inflation and real GDP growth expectations. This suggests that, in tranquil times, markets focus more prominently on risk stemming from sensitivity to macroeconomic shocks. However, when global risk aversion is high, creditors' concern with default risk takes center stage and expectations regarding fiscal deficits and government debt play a significant role in determining domestic bond yields. Every additional percentage point in the expected debt-to-GDP ratio raises domestic bond yields by 6 basis points; and every percentage point expected worsening in the overall fiscal balance-to-GDP ratio raises yields by 30 basis points. In view of the ebb and flow of global conditions, these findings underscore the need for emerging economies to remain fiscally prudent in good times, as the favorable conditions they face could shift unexpectedly. The remainder of this paper is structured as follows. Section 2 discusses stylized facts about domestic sovereign bond markets. Section 3 provides background on the estimation methodology while Section 4 provides details on data and estimation results. Section 5 presents the main conclusions and policy implications.

The present paper sheds new light on the determinants of domestic bond yields in emerging markets. It makes several contributions to the existing literature. It develops a new high frequency dataset with wide country coverage. It also takes into account the effect that a shift in global market sentiment can have on investors' assessment of credit risk by extending the basic fixed effects model to allow the explanatory variables to have differing regression slopes depending on whether global risk aversion is above or below a certain threshold, which is chosen endogenously to maximize the fit of the model. The results show that it does matter what state you are in, both in terms of the global environment as well as the health of a country's fiscal position. During tranquil times in global markets, bond yields are mainly influenced by inflation and real GDP growth projections, showing markets' greater concern with risk stemming from sensitivity to macroeconomic shocks. However, when global risk aversion is high, market participants pay more attention to country-specific fiscal fundamentals, revealing greater alertness about default risk. These findings have important policy implications. In view of the ebb and flow of global conditions, they underscore the need to remain fiscally prudent in good times, as the favorable conditions facing emerging markets could shift unexpectedly. Indeed, when the VIX crossed the model defined threshold in mid-2011, bond yields increased for those countries with the weakest fiscal position. There are several directions for further research. In particular, it would be interesting to analyze if the negative spillovers from global risk aversion found in this paper are not homogenous across countries but rather are a function of country specific characteristics such as the strength of fiscal fundamentals and the size of trade and financial sector linkages. This topic, which goes beyond the scope of this paper, is left for future analysis.