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Liquidity and credit risk premia in government bond yields

Listed author(s):
  • Ejsing, Jacob
  • Grothe, Magdalena
  • Grothe, Oliver
Registered author(s):

    This paper quantifies liquidity and credit premia in German and French government bond yields. For this purpose, we estimate term structures of government-guaranteed agency bonds and exploit the fact that any difference in their yields vis-`a-vis government bonds can be attributed to differences in liquidity premia. Adding the information on risk-free rates, we obtain model-free and model-based gauges of sovereign credit premia, which are an important alternative to the information based on CDS markets. The results allow us to quantify the price impact of so-called JEL Classification: E44, G12, G01

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    File URL: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1440.pdf
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    Paper provided by European Central Bank in its series Working Paper Series with number 1440.

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    Date of creation: Jun 2012
    Handle: RePEc:ecb:ecbwps:20121440
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    1. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108.
    2. Jean-Sébastien Fontaine & René Garcia, 2012. "Bond Liquidity Premia," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1207-1254.
    3. Ejsing, Jacob & Lemke, Wolfgang, 2011. "The Janus-headed salvation: Sovereign and bank credit risk premia during 2008-2009," Economics Letters, Elsevier, vol. 110(1), pages 28-31, January.
    4. Jan Ericsson & Olivier Renault, 2006. "Liquidity and Credit Risk," Journal of Finance, American Finance Association, vol. 61(5), pages 2219-2250, October.
    5. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, 02.
    6. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
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