Yield-to-maturity on Sovereign Eurobonds and foreign-currency Sovereign borrowing in EMEs

This paper studies the main determinants of the yield-to-maturity of Emerging Market Economies (EMEs)’ Sovereign Eurobonds and emphasizes that not only the share of total government debt in GDP but also its decomposition into foreign-currency-denominated and domestic-currency-denominated debt matters for the yields to maturity in question. Indeed, while an increase in the ratio of domestic-currency-denominated sovereign debt to GDP has no significant effect on the yield to maturity of EMEs’ Sovereign Eurobonds, an increase in the ratio of foreign-currency-denominated sovereign debt to GDP leads to a significant rise in the yield to maturity of EME Sovereign Eurobonds. This significant effect of the foreign-currency-denominated Sovereign debt on the yield to maturity of EME Sovereign Eurobonds holds even when we control for institutional quality in EMEs.