We investigate correlation dynamics and diversification properties of US dollar-denominated debt issued by governments of frontier markets. Our analysis is on the aggregate, regional, and country level, with a sample covering 29 countries over the period 2001–2013. We show that the correlation between the returns of frontier government bond markets and US government bonds is time-varying, but on average close to zero. Correlations with US investment grade corporate bonds, US corporate high yield bonds, and US dollar-denominated debt issued by governments of emerging markets are substantially higher, which limits diversification benefits for investors who already own these asset classes.

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Keywords Bonds, Diversification, Emerging markets, Frontier markets
Persistent URL dx.doi.org/10.1016/j.ememar.2015.10.002, hdl.handle.net/1765/98870
Journal Emerging Markets Review
Piljak, V. (Vanja), & Swinkels, L.A.P. (2017). Frontier and emerging government bond markets. Emerging Markets Review, 30, 232–255. doi:10.1016/j.ememar.2015.10.002