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The determinants of sovereign bond yield spreads in the EMU

  • António Afonso
  • Michael G. Arghyrou
  • Alexandros Kontonikas

We use a panel of euro area countries to assess the determinants of long-term sovereign bond yield spreads over the period 1999.01-2010.12. We find that, unlike the period preceding the global financial crisis, European government bond yield spreads are wellexplained by macro- and fiscal fundamentals over the crisis period. We also find that the menu of macro and fiscal risks priced by markets has been significantly enriched since March 2009, including the risk of the crisis’ transmission among EMU member states, international risk and liquidity risk. Finally, we find that sovereign credit ratings are statistically significant in explaining spreads, yet compared to macro- and fiscal fundamentals their role is limited. JEL Classification: C23, E62, H50.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp362012.pdf
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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2012/36.

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Date of creation: Oct 2012
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Handle: RePEc:ise:isegwp:wp362012
Contact details of provider: Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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