Flights-to-quality from EM Bonds to safe-haven US Treasury Securities: A time-frequency Analysis. Issue 2 (26th January 2023)

• Record Type: Journal Article
• Authors: Gubareva, Mariya; Umar, Zaghum; Teplova, Tamara; Vo, Xuan Vinh
• Is Part Of: Emerging markets finance & trade. Volume 59:Issue 2(2023)
• Page Start: 338
• Page End: 362
• Publication Date: 2023-01-26
• Subjects: subprime and Covid-19 crises -- flight-to-quality -- spread and total return -- safe-haven US Treasuries -- emerging market debt; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2022.2103399
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: We study 2001–2020 flight-to-quality episodes encompassing two planetary-scale crises: the Global Financial Crisis (GFC) of 2007–2008 and the coronavirus-triggered global meltdown. We focus on time-frequency lead-lag nexuses between holding emerging market (EM) debt and investing in relatively risk-free US Treasuries. Wavelet coherency along with the phase-difference approach is used. Our results reveal varying lead-lag patterns and low-coherence zones between EM bonds and US Treasuries, which imply the existence of appealing diversification attributes. The flights-to-quality during the crisis periods, such as the GFC and COVID-19 pandemic, emphasize the safe-haven characteristics of US Treasures. They also evidence that the post-Covid tightening of credit spreads to the pre-crisis levels is faster than the post-GFC recovery. We demonstrate that for EM debt investors, the US Treasury market allows for dynamic risk mitigation strategies during both global crises.