The COVID-19 shock and long-term interest rates in emerging market economies.

Motivated by a divergent behavior of long-term sovereign bond yields across emerging market economies in the onset of the COVID-19 pandemic, we employ the Bayesian model averaging to uncover the country-specific factors that explain those differences. The most pronounced determinants of a country's vulnerability to the COVID-19 shock were: (a) low GDP dynamics and (b) high sensitivity of bond yields to VIX in the period preceding the pandemic. Our results speak to the role of growth fundamentals in building-up the exposure to crises in emerging markets. They also signify a persistent differentiation of emerging economies by international investors.