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The determinants of sovereign bond yield spreads in the EMU

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  • Kontonikas, Alexandros
  • Arghyrou, Michael G.
  • Afonso, António
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    Abstract

    We use a panel of euro area countries to assess the determinants of long-term sovereign bond yield spreads over the period 1999.01-2010.12. We find that, unlike the period preceding the global financial crisis, European government bond yield spreads are wellexplained by macro- and fiscal fundamentals over the crisis period. We also find that the menu of macro and fiscal risks priced by markets has been significantly enriched since March 2009, including the risk of the crisis’ transmission among EMU member states, international risk and liquidity risk. Finally, we find that sovereign credit ratings are statistically significant in explaining spreads, yet compared to macro- and fiscal fundamentals their role is limited.

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    File URL: http://repo.sire.ac.uk/handle/10943/387
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    Bibliographic Info

    Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2012-88.

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    Date of creation: 2012
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    Handle: RePEc:ags:aaea07:387

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    Keywords: sovereign yields; government debt; panel analysis; credit ratings;

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    Cited by:
    1. António Afonso, & Michael G. Arghyrou, & George Bagdatoglou, & Alexandros Kontonikas, 2013. "On the time-varying relationship between EMU sovereign spreads and their determinants," Working Papers Department of Economics 2013/05, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    2. Heather D. Gibson & Stephen G. Hall & George S. Tavlas, 2013. "Fundamentally Wrong: Market Pricing Of Sovereigns And The Greek Financial Crisis," Discussion Papers in Economics 13/20, Department of Economics, University of Leicester.

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