Do local and global factors impact the emerging markets' sovereign yield curves? Evidence from a data‐rich environment

This paper investigates the relation between yield curve and macroeconomic factors for 10 emerging sovereign bond markets using sample from January 2006 to April 2019. To this end, diffusion indices obtained under four categories (global variables, inflation, domestic financial economic activity) are incorporated by estimating dynamic panel data regressions together with factors. Besides, in order capture interaction macroeconomic/financial factors, a vector autoregressive (VAR) analysis based on system generalized method of moments (GMM) approach is utilized. Empirical results suggest that level factor responds shocks originated global variables. Furthermore, slope affected curvature appears be influenced We also show captures significant predictive information over running individual country factor-augmented variable selection algorithms such ridge regression, least absolute shrinkage operator (LASSO), Elastic Net. Our findings have important implications policymakers fund managers explaining underlying forces movements forecasting accurately dynamics