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The determinants of sovereign bond yield spreads in the EMU

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  • António Afonso
  • Michael G. Arghyrou
  • Alexandros Kontonikas

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 well-explained 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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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2012_14.

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Date of creation: Oct 2012
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Handle: RePEc:gla:glaewp:2012_14

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

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Citations

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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 2013_05, Business School - Economics, University of Glasgow.
  2. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers 2013/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  3. António Afonso & Ana Sofia Nunes, 2013. "Economic forecasts and sovereign yields," Working Papers 2013/02, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..

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