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Sovereign risk premia in the European government bond market

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  • Bernoth, Kerstin
  • von Hagen, Jürgen
  • Schuknecht, Ludger

Abstract

This paper provides a study of bond yield differentials among EU eurobonds issued between 1991 and 2002. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premia which increase with the debt, deficit and debt-service ratio and depend positively on the issuer’s relative bond market size. Global investors’ attitude towards credit risk, measured as the yield spread between low grade US corporate bonds and government bonds, also affects bond yield spreads between EU countries and Germany/USA. The start of the European Monetary Union had significant effects on the bond pricing of the member states. --

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Bibliographic Info

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 26-2003.

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Date of creation: 2003
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Handle: RePEc:zbw:zeiwps:b262003

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  1. Capeci, John, 1994. "Local fiscal policies, default risk, and municipal borrowing costs," Journal of Public Economics, Elsevier, vol. 53(1), pages 73-89, January.
  2. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-59, November.
  3. Ivo J. M. Arnold & Jan J.G. Lemmen, 1999. "The Vulnerability of Banks to Government default risk in the EMU," FMG Special Papers sp115, Financial Markets Group.
  4. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 503-532, October.
  5. Laurence Copeland & Sally-Anne Jones, 2001. "Default probabilities of European sovereign debt: market-based estimates," Applied Economics Letters, Taylor & Francis Journals, vol. 8(5), pages 321-324.
  6. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers 1088, C.E.P.R. Discussion Papers.
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