Premium for Currency Risks in Government Bond Yield of Developing countries

In this paper author consider Premium for currency risks in government bond yield of developing countries. The two types of ten-year government bonds of Russia, Brazil and Peru, which are denominated in local currency and US dollars were chosen as test data. Observations contain period from 2012 to 2015, which allowed us to estimate the change of the currency risk premium in the post-crisis period (2012-2014) and during the crisis period (2014-2015). Estimation of premiums for foreign exchange risk is considered from two points of view: for local and foreign investors. Results of the study found that in selected developing countries, there is a positive premium for currency risk when investing period is more than 6 months. A positive value of the premium is due to the weakening of the developing country's currency against the US dollar. This award allows local investors to earn higher returns in local currency when investing in government Eurobonds, than when investing in bonds denominated in the local currency of the country. It was also measured the impact of the award on the following factors: the dollar index, the price of Brent crude oil, the yield of ten-year US Treasury bonds and the volatility of the US stock market. After the econometric analysis found that most of the selected models to a positive premium for currency risk affects the yield ten-year government bonds.