What Explains the Volatility in Pakistan’s Sovereign Bond Yields?

Tunio, Mohsin Waheed (2023): What Explains the Volatility in Pakistan’s Sovereign Bond Yields?

Abstract

This paper, using a combination of volatility models i.e. GARCH, TGARCH, and EGARCH, tries to explain the domestic and external factors, responsible for volatility in Pakistan’s sovereign bond yield-to-maturity of various bond tenors. The paper finds out that within domestic factors, apart from the macroeconomic fundamentals, political changes such as the one that took place in April 2022 did also significantly impact the yields. In addition to the domestic factors, the general riskiness perception of emerging market bonds as measured by Emerging Market Bond Index (EMBI) spreads does also have meaningful repercussions on the yields of Pakistani bonds. Besides, sovereign defaults in the regional economies such as Sri Lanka do also greatly influence the yields by causing an uptick in them.

• Item Type: MPRA Paper
• Language: English
• Keywords: Volatility, Sovereign bonds, Yield, Eurobond, Sukuk, Spreads
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B26 - Financial Economics; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

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