Global Risk in Long-Term Sovereign Debt

Abstract This paper focuses on emerging market government bonds issued in local currency with different maturities. Foreign investors face interest rate, currency, and credit risks. We consider the entire term structure of carry trade returns find that, while default premium does not contribute to strategies, contribution rate risk, captured by premium, is large increases maturity. introduce risk an otherwise standard affine model; we show that volatility permanent component SDFs must be across markets order match these stylized facts. (JEL F31, F34, G15) Received September 9, 2019; editorial decision March 25, 2021 Editor: Nikolai Roussanov. Authors have furnished Internet Appendix, which available Oxford University Press Web site next link final published online.