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What drives provincial‐Canada yield spreads?

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Listed:
  • Laurence Booth
  • George Georgopoulos
  • Walid Hejazi

Abstract

. Although recent research has led to a deeper understanding of the factors determining yields on long‐term Canada bonds, there has been little corresponding work on provincial bonds. By using a carefully constructed new data set, we establish two important results. First, provincial fiscal positions (debt and deficits) are an important factor in determining yield spreads between provincial and Canada bonds. Second, we show that provincial bonds are a substitute for corporate debt, in that during recessionary ‘flights to quality’ their yields react like those on corporate bonds. Même si les recherches récentes ont contribuéà faire mieux comprendre les facteurs qui déterminent les rendements sur les débentures à long terme du gouvernement canadien, on a fait peu de travail sur le même sujet à propos des débentures provinciales. En utilisant une nouvelle base de données, on peut établir deux résultats importants. D'abord, les fondements fiscaux des provinces (dette et déficit) sont des facteurs importants dans la détermination de l'écart de rendements avec les débentures fédérales. Ensuite, les débentures provinciales sont des substituts de la dette corporative en ce sens que, au cours des périodes de récession où il y a ≪envol vers la qualité≫, les rendements sur les débentures provinciales ont un comportement similaire à celui des débentures privées.

Suggested Citation

  • Laurence Booth & George Georgopoulos & Walid Hejazi, 2007. "What drives provincial‐Canada yield spreads?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(3), pages 1008-1032, August.
  • Handle: RePEc:wly:canjec:v:40:y:2007:i:3:p:1008-1032
    DOI: 10.1111/j.1365-2966.2007.00440.x
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    Cited by:

    1. Mustapha Olalekan Ojo & Luís Aguiar-Conraria & Maria Joana Soares, 2020. "A time–frequency analysis of the Canadian macroeconomy and the yield curve," Empirical Economics, Springer, vol. 58(5), pages 2333-2351, May.
    2. Mr. Sergio Sola & Mr. Geremia Palomba, 2015. "Sub-National Government’s Risk Premia: Does Fiscal Performance Matter?," IMF Working Papers 2015/117, International Monetary Fund.
    3. Charles Wyplosz, 2012. "Fiscal Rules: Theoretical Issues and Historical Experiences," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 495-525, National Bureau of Economic Research, Inc.
    4. Geloso, Vincent J. & Grier, Kevin B., 2022. "Love on the rocks: The causal effects of separatist governments in Quebec," European Journal of Political Economy, Elsevier, vol. 71(C).
    5. Dhritidyuti Bose & Rajeev Jain & Lakshmanan L, 2011. "Determinants of Primary Yield Spreads of States in India: An Econometric Analysis," Working Papers id:4370, eSocialSciences.

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