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Risk Premiums in Slovak Government Bonds

Author

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  • Ludovit Odor

    (Council for Budget Responsibility)

  • Pavol Povala

    (Council for Budget Responsibility)

Abstract

We study risk premiums in Slovak government bonds. We focus on the country-specific part of yields which we associate with the spread to overnight-indexed swaps. In the period 2009-2015, we decompose the term structure of spreads to credit risk premium, liquidity premium, safety/convenience demand, and segmentation effects. While the level of the term structure of spreads is mostly related to sovereign credit risk, non-default components are related to the second principal component of spreads. We also identify a siezable effect of public sector purchase programme conducted by the European Central Bank with a magnitude in excess of 60 basis points for the ten-year bond. To study determinants of spreads in a longer sample 2000-2015, we construct credit spreads from international euro-denominated bonds. We find that debt-to-GDP ratio together with global financial variables explain a substantial fraction of spread variation.

Suggested Citation

  • Ludovit Odor & Pavol Povala, 2016. "Risk Premiums in Slovak Government Bonds," Discussion Papers Discussion Paper No. 3/20, Council for Budget Responsibility.
    • Handle: RePEc:cbe:dpaper:201603
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk premiums; yield curve models; sovereign credit risk; liquidity;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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