The Effects of U.S. Monetary Policy on Emerging Market Economies' Sovereign and Corporate Bond Markets

John D. Burger, Francis E. Warnock, Veronica Cacdac Warnock

NBER Working Paper No. 23628
Issued in July 2017
NBER Program(s):International Finance and Macroeconomics

We analyze the effect of the US Federal Reserve’s monetary policy on EME sovereign and corporate bond markets by focusing on two dimensions: the evolution of the structure (size and currency composition) of the bond markets and their allocations within the bond portfolios of US investors. Global factors, particularly the level of long-term US Treasury yields, matter. Across all specifications, when US long-term interest rates were low (i) EMEs issued more sovereign and private-sector local currency bonds and more private-sector foreign currency bonds and (ii) US investment in EME sovereign bonds (both local currency and USD-denominated) increased. In contrast, after controlling for the level of US long-term interest rates, measures that attempt to isolate the effects of US unconventional monetary policy are often statistically insignificant in our analysis. Local factors matter too: The local currency government bond markets in countries with stronger regulatory quality/creditor rights are larger and attract relatively more US investment. Finally, consistent with Burger et al. (2017), we find that the well-known home bias phenomenon is at least in part a home currency bias: US investors exhibit no home bias against some countries’ USD-denominated bonds, whereas for local currency bonds the familiar home bias is very present.

download in pdf format
   (1270 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23628

Published: Burger, J., F. Warnock, and V. Warnock, 2018. The Effects of U.S. Monetary Policy on Emerging Market Economies’ Sovereign and Corporate Bond Markets. Central Banking, Analysis, and Economic Policies Book Series in: Enrique G. Mendoza & Ernesto Pastén & Diego Saravia (ed.), Monetary Policy and Global Spillovers: Mechanisms, Effects, and Policy Measures, edition 1, volume 25, chapter 3, pages 49-96 Central Bank of Chile.

Users who downloaded this paper also downloaded* these:
Fons-Rosen, Kalemli-Özcan, Sorensen, Villegas-Sanchez, and Volosovych w23643 Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects
Chari, Dilts Stedman, and Lundblad w23474 Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows
Cohen, Hahn, Hall, Levitt, and Metcalfe w22627 Using Big Data to Estimate Consumer Surplus: The Case of Uber
Burger, Warnock, and Warnock w23175 Currency Matters: Analyzing International Bond Portfolios
Bernstein, Lerner, and Mezzanotti w23626 Private Equity and Financial Fragility during the Crisis
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us