Real interest rates

Spreads on sovereign borrowing

The sudden drying up of liquidity, increased risk-aversion, and increased uncertainty yielded a change in the pricing of risk throughout the global economy. Interest rate spreads on riskier assets, including the bonds of firms in developing- and high-income countries and of selected sovereign states, increased substantially. Developing-country spreads remain high, and, even though the base rates against which these spreads are calculated have declined in response to the post-crisis relaxation of monetary policy in high-income countries, yields and borrowing costs for developing-country firms have increased substantially—doubling in some cases—with potentially important effects on debt sustainability and the profitability of future investment.