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Abstract(s)
We analyze liquidity of the emerging market (EM) bonds during the Covid-19 fueled uncertainty. Using bid/offer spreads we demonstrate that the apogee of both, liquidity and credit stresses is reached in late-March, and that although liquidity has improved since then, it has not yet returned to the pre-Covid levels. In particular, we find that the EM financials are more resilient to liquidity shocks than the EM corporates and
sovereigns. Moreover, we observe a decoupling in the dynamics of the liquidity and credit risk metrics, as credit spreads have been tightening very slowly due to the Covid-19-triggered repricing of default risk.
Description
ISCAL Working Papers Series
Keywords
COVID-19 pandemic Liquidity Emerging markets Fixed-income Bid/offer spread Option-adjusted spread (OAS)