Sovereign Spreads and Contagion Risks in Asia

This paper explores how much of the movements in the sovereign spreads of Asian economies over the course of the global financial crisis has reflected shifts in (i) global risk aversion; (ii) country-specific risks, directly from worsening fundamentals, and indirectly from spillovers originating in other sovereigns and the uncertainty surrounding exchange rates. Earlier in the crisis, the increase in market-implied contagion led to higher Asian sovereign bond yield spreads over swaps. But, after the crisis, Asia's sovereign spreads normalized, despite the debt crisis in the euro area, reflecting a fall in both exchange rate and spillover risks.
Publication date: June 2011
ISBN: 9781455259397
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Economics- Macroeconomics , Economics / General , International - Economics , exchange rate , bond , exchange rate risk , bond yields , sovereign bond , government bond , currency risk , government bond yields , financial markets , exchange risk , bond spreads , bond markets , financial sector , government bonds , exchange rate volatility , fixed exchange rate

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