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Yield spreads on EMU government bonds
[‘Fiscal policy events and interest rate swap spreads: some evidence from the EU’]

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  • Lorenzo Codogno
  • Carlo Favero
  • Alessandro Missale

Abstract

Government bond spreadsWe provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors – as measured by banking and corporate risk premiums in the United States – are more pronounced for bonds issued by Italy and Spain. Liquidity factors play a smaller role, so policies meant to increase financial market efficiency do not appear sufficient to deliver a ‘seamless’ bond market in the euro area. The risk of default is a small but important component of yield differentials movements, which signal market perceptions of fiscal vulnerability, impose market discipline on national fiscal policies, and may be reduced only by further convergence in debt ratios.— Lorenzo Codogno, Carlo Favero and Alessandro Missale

Suggested Citation

  • Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds [‘Fiscal policy events and interest rate swap spreads: some evidence from the EU’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 503-532.
    • Handle: RePEc:oup:ecpoli:v:18:y:2003:i:37:p:503-532.
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    File URL: http://hdl.handle.net/10.1111/1468-0327.00114_1
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