Government bond risk premiums in the EU revisited: The impact of the financial crisis
AbstractThis article looks at US$ and DM/Euro-denominated government bond spreads relative to US and German benchmark bonds before and after the start of the current financial crisis. The study finds, first, that bond yield spreads during the crisis can largely be explained on the basis of the same variables as before the crisis. Second, markets penalise fiscal imbalances much more strongly after the Lehman default in September 2008 than before. There is also a significant increase in the spread on non-benchmark bonds due to higher general risk aversion, and German bonds obtained a safe-haven investment status similar to that of the US which they did not have before the crisis. These findings underpin the need for achieving sound fiscal positions in good times and complying with the Stability and Growth Pact.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Political Economy.
Volume (Year): 27 (2011)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505544
Sovereign risk premiums Bond markets Financial crisis;
Other versions of this item:
- Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2010. "Government bond risk premiums in the EU revisited: the impact of the financial crisis," Working Paper Series 1152, European Central Bank.
- Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government Bond Risk Premiums in the EU revisited: The Impact of the Financial Crisis," CEPR Discussion Papers 7499, C.E.P.R. Discussion Papers.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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