Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249863 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021-27
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium, which is a measure of the risk-bearing capacity of US financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.
Subjects: 
sovereign bonds
CDS
global financial risk
excess bond premium
global financial cycle
JEL: 
E43
E44
F33
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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