Against the background of the current debate about fiscal sustainability in several advanced economies, this paper estimates determinants of G7 sovereign bond spreads, using high‐frequency proxies for market expectations about macroeconomic fundamentals and allowing for time‐varying...

Exploiting information contained in the term-structure of sovereign credit spreads, we estimate time-varying fiscal limits – defined as the maximum outstanding debt that can credibly be covered by future primary budget surpluses. Our approach is based on a novel sovereign credit risk model...

Emerging market interest rate spreads display substantial time-varying volatility. We show that a baseline model with endogenous sovereign default risk can account for such volatility, even in the absence of shocks to the second moments of the exogenous stochastic variables. In particular, the...

This study investigates the systematic risk factors driving emerging market (EM) credit risk by jointly modelling sovereign and corporate credit spreads at a global level. We use a multi-regional Bayesian panel VAR model, with time-varying betas and multivariate stochastic volatility. This model...

We document a new risk premium in the Japanese yen that compensates for the policy uncertainty in Japan. The yen risk premium is implied from bond markets under the assumption of no-arbitrage. We estimate a regime switching term structure model and find that in Japan, the conventional monetary...

The paper considers a no-arbitrage setting for pricing and relative value analysis of risky sovereign bonds. The typical case of an emerging market country (EM) that has bonds outstanding both in foreign hard currency (Eurobonds) and local soft currency (treasuries) is inspected. The resulting...

We investigate the term structure of sovereign yield spreads for five advanced economies against the US and provide novel insights on the key drivers of the term structure. We show that the spread term structure dynamics are driven by three latent factors, which can be labeled as spread level,...

The paper investigates the risky sovereign spreads and the CDS-Bond basis of a country following a fixed exchange rate under a Currency Board Arrangement (CBA). The particular monetary regime affects significantly the mechanics of the bond market and needs a special investigation. We start by...

We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict...