Treasury Yields and Asset Prices in the Middle East/Central Asia

What’s the effect of higher treasury yields on stock prices and FX rates in the Middle East and Central Asia (ME&CA)?  Using our ICRG data as one of the ‘pull’ factors – along with GDP growth and capital account openness – the study found that a 100-basis-point increase in the US 10-year Treasury yield, stock prices in the ME&CA fell by about 6% over a 6-month period following the initial shock, while exchange rates depreciate by about 3%. Additionally, long- term sovereign yields increase by about 56 basis points (bps).

The work was presented in the Fund’s April ’22 Economic Regional Outlook and titled ‘Changing Tides: Spillovers from US Monetary Policy Normalization to the Middle East and Central Asia, April 2022. (https://www.imf.org/en/Search#q=ICRG&sort=relevancy)

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