On international integration of emerging sovereign bond markets

The paper investigates the international integration of EM sovereign dollar-denominated and local-currency bond markets. Factor analysis is used to examine movements in bond yields and common sources of variation. Results suggest that EM dollar-denominated debt markets are highly integrated; one common factor, highly correlated with US and EU interest rates, explains 80% of the total variability in yields. Local currency bond markets are not as internationally integrated, and three common factors explain 74% of total variability. But a global interest rates factor still explains 63% of the yield variation accounted for by common factors. Heterogeneity among EMs is explored.