Governed by the cycle: interest rate sensitivity of emerging market corporate debt

Annals of Operations Research. 2021. P. 1–29.

Gubareva Mariya, Borges M. R.

This study addresses interest rate sensitivity of emerging market corporate debt. Previous research suggests that interest rate sensitivity of corporate bonds depends on residual maturity of issues, creditworthiness of issuers, embedded options and other idiosyncratic factors. However, the dependence of interest rate sensitivity on phases of the business cycle has not received an appropriate academic attention. This paper provides empirical evidence and theoretical interpretation of a dichotomy of interest rate sensitivity across the phases of the cycle, and sheds light on how credit spreads respond to interest rates. The historical span of the research covers the period of 2004–2016. The findings imply that hedging interest rate risk ought to be a dynamic process and take into consideration where the economy is positioned in the current business cycle. This research provides important insights on the nature of interest rate sensitivity, capable of enhancing financial stability and improving efficiency of financial system.

Keywords: развивающиеся рынки, emerging markets, corporate debt, корпоративный долг, capital gains, fixed income, downside risk management, interest rate sensitivity, инструменты с фиксированной доходностью, управление риском снижения цен, чувствительность процентных ставок, прирост капитала

Publication based on the results of: Specifics of investing in emerging markets (2021)