No. 1493 - Global risk aversion and the term premium gap in emerging market economies

Temi di discussione (Working papers)
by Marco Flaccadoro and Stefania Villa
October 2025
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The paper examines the impact of sharp changes in global risk aversion on the term structure of yield spreads between emerging market and US sovereign bonds. In particular, it analyses how such shocks affect short- and long-term yields differently, altering the term premium gap.

An increase in global risk aversion, which typically characterises periods of tension in financial markets, leads to a widening of spreads across all maturities, particularly short-term ones. This raises the incentive for emerging countries to prefer issuing long-term debt in order to reduce risks and refinancing costs during periods of market tension.

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  1. 13 October 2025
    No. 1493 - Global risk aversion and the term premium gap in emerging market economies
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