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Binary interest rate sensitivities of emerging market corporate bonds
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Resumo(s)
We develop a framework to assess interest rate sensitivities of emerging market corpo rate debt. Our analysis, based on yield indexes, is applied to investment grade and high yield portfolios. We reach beyond correlation-based analyses of interest rate sensitivity and keep our scope centered at capital gains of emerging market corporates and U.S. government bonds portfolios. Our empirical analysis spans over the period 2002–2015. We address interest rate sensitivity of assets during the ignition, apogee, and the after math of the global financial crisis. Based on historical data series, we evidence that the emerging market corporate bonds exhibit two different regimes of sensitivity to inter est rate changes. We observe switching from a positive sensitivity under the normal market conditions to a negative one during distressed phases of business cycles and provide economical explanations of such phenomena. We show that emerging mar ket corporate bonds, which on average could appear rather insensitive to the interest rate risk, in fact, present binary interest rate sensitivities. This research sheds light on how financial institutions may approach interest rate risk management including the downside risk hedge. Our findings allow banks and financial institutions to optimize economic capital under Basel III regulatory capital rules
Descrição
Palavras-chave
Fixed Income Portfolio Performance Evaluation Downside Risk Management Emerging Markets Corporate Debt Interest Rate Sensitivity
Contexto Educativo
Citação
Gubareva, Mariya and Maria Rosa Borges (2018). “Binary interest rate sensitivities of emerging market corporate bonds”. The European Journal of Finance, Volume 24, No17: pp. 1569-1586 .(Search PDF in 2024).
Editora
Taylor & Francis Group