The Role of Country, Regional and Global Market Risks in the Dynamics of Latin American Yield Spreads

We analyze the joint impact of country, regional and global market risks on weekly changes in yield spreads of Mexico, Colombia and Brazil. In contrast to previous studies, we consider a homogenous set of liquid Eurobonds which are representative of current emerging bond markets. All risk-factor groups are significant, though relative importance is country-specific. Mexico's spread is mainly driven by global risk while country risk contributes 40% to the explained variance for Colombia and Brazil; another 40% stem from regional risk for Colombia and global risk for Brazil. The sensitivity of spread changes to risk factors varies with bond maturity