International Monetary Fund publishes working paper on predictors of emerging market market access and high-spread bond issuances

The International Monetary Fund has released a working paper examining what drives emerging market and developing economies’ access to international bond markets and how issuance is sustained when spreads are high. The paper combines a stylized credit-rationing model based on moral hazard with empirical forecasting, and highlights a role for instruments such as guarantees, collateral and macro-contingent features when conventional market access becomes constrained. Empirically, the authors use quarterly data for 46 economies with EMBIG spreads from 2000Q1 to 2023Q2 and estimate a random forest model to predict whether a sovereign will issue in quarters t+3 or t+4. Outstanding international obligations, gross international reserves, short-term external debt, EMBIG spreads and nominal GDP emerge as key predictors, with notable non-linearities including an inverted U-shaped relationship between spreads and issuance probability that peaks around 200 basis points and falls sharply around 600 basis points. The analysis also finds that issuance sensitivity to factors such as exchange rate regime, governance indicators, official creditor exposure, IMF engagement and global growth is stronger in high-spread observations. A new dataset of 84 high-spread issuances by 16 small economies since 2012Q1 at spreads above 437 basis points indicates that 36 percent included guarantees, contingencies or collateral, rising to 42 percent when spreads exceed 600 basis points, and that these unconventional deals tend to be larger. The IMF notes the paper is research in progress published to elicit comments and does not represent IMF policy.