IMF Research Shows US Long-Term Rate Shocks Impact Emerging Market Bonds

An IMF paper investigates how shocks to the U.S. long-term risk-neutral interest rate influence emerging market local currency sovereign bonds, finding that a rise in the U.S. rate increases both local currency sovereign yields and term premia in emerging markets. The research also highlights that domestic investor participation, particularly from domestic banks and non-bank institutional investors, mitigates these spillover effects.