And sovereign spreads are blowing out.
"Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies". HKS Faculty Research Working Paper Series RWP13-028, September 2013.
"Of course, countries with high and increasing debt, and elevated sovereign spreads need to pursue further fiscal consolidation.
Creating this fire break between Greece and Europe's core would have been far easier two years ago, before debt/GDP ratios and sovereign spreads climbed so high, and before eurozone leaders' credibility sank so low, or even one year ago.
For those more inclined to respond to widening sovereign spreads than to the consistent message from Berlin that Europe, for Germany, was always as much a political project as an economic one, Draghi's statement came as a shock — and a very costly one to those on the other side of the trade.
The paper thus contributes more generally to the literature on the external determinants of sovereign spreads.
Given the importance of external financing and the volatility of Latin American sovereign spreads, the region's economic authorities need to identify the main driving forces of sovereign spreads.
This has triggered a lively debate on whether external or domestic factors are most relevant in explaining sovereign spreads.
Our paper contributes to this literature by analyzing how investors' attitude toward risks affects Latin American sovereign spreads.
One strand of the literature argues that domestic factors namely, economic fundamentals are particularly relevant in determining sovereign spreads.
On this basis, this paper not only studies the impact of global risk aversion on Latin American sovereign spreads, but also that of its main driving forces, such as U.S. economic growth and the U.S. risk-free rate.
