We analyze yield spreads on sovereign bonds issued by emerging markets, using modern data from the 1990s and newly collected historical data on bonds traded in London during 1870-1913, a previous era of global capital market integration. We show that spreads today comove across emerging markets to a significantly higher degree than they did in the historical sample. Moreover, sharp changes in spreads in the 1990s tend to be mostly related to global events, whereas they were primarily related to country-specific events in 1870-1913. Although we find that fundamentals comove somewhat more strongly today than they did in the past, we conjecture that today's investors pay less attention to country-specific events than their predecessors did.
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* We are grateful for helpful comments and suggestions by Tamim Bayoumi, Eduardo Borensztein, Fabio Canova, Paul Cashin, Vance Martin, Arie Melnick, Gian Maria Milesi-Ferretti, Eswar Prasad, Anthony Richards, Roberto Rigobon, Antonio Spilimbergo, three anonymous referees, the editor, and seminar participants at Birkbeck College, the International Monetary Fund, the University of Oxford, Stockholm School of Economics, Tilburg University, the University of California at Berkeley, Harvard University, the Hebrew University of Jerusalem, the University of Montreal, Tel Aviv University, the University of Vienna, and the World Bank. Grace Juhn, Nimrod H’Giladi, and Lilach Weiss provided excellent research assistance. We are extremely grateful to Mardi Dungey for generously sharing her GARCH latent factors computer programs and for teaching us how to adapt them to our data set. This paper was revised while Yafeh was a Visiting Fellow at St. Antony’s College and the Nissan Institute, University of Oxford, whose hospitality and financial support he gratefully acknowledges. The views expressed are not necessarily those of the International Monetary Fund.