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The anatomy of government bond yields synchronization in the Eurozone

Author

Listed:
  • Claudio Barbieri

    (European Central Bank - European Central Bank, UniCA - Université Côte d'Azur)

  • Mattia Guerini

    (UniBs - Università degli Studi di Brescia = University of Brescia)

  • Mauro Napoletano

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, UniCA - Université Côte d'Azur, Institute of Economics of Sant'Anna [Pisa] - SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa])

Abstract

We investigate the synchronization of the Eurozone's government bond yields at different maturities. For this purpose, we combine principal component analysis with random matrix theory. We find that synchronization depends on yield maturity. Short-term yields are not synchronized. Medium- and long-term yields, instead, were highly synchronized early after the introduction of the Euro. Synchronization then decreased significantly during the Great Recession and the European Debt Crisis, to partially recover after 2015. We interpret our empirical results using portfolio theory, and we point to divergence trades as a source of the self-sustained yield asynchronous dynamics. Our results envisage synchronization as a requirement for the smooth transmission of conventional monetary policy in the Eurozone.

Suggested Citation

  • Claudio Barbieri & Mattia Guerini & Mauro Napoletano, 2024. "The anatomy of government bond yields synchronization in the Eurozone," Sciences Po Economics Publications (main) hal-04530954, HAL.
    • Handle: RePEc:hal:spmain:hal-04530954
    DOI: 10.1017/S1365100523000597
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04530954v1
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    Cited by:

    1. is not listed on IDEAS
    2. Guerini, Mattia & Vanni, Fabio & Napoletano, Mauro, "undated". "E pluribus, quaedam. Gross domestic product out of a dashboard of indicators," FEEM Working Papers 324043, Fondazione Eni Enrico Mattei (FEEM).
    3. Röhrer, Fabio E.G. & Mateane, Lebogang & Proaño, Christian R., 2025. "The Perverse Valuation Effect on Mergers and Acquisitions in Europe," Economic Modelling, Elsevier, vol. 142(C).

    More about this item

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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