Decomposing euro area sovereign spreads: credit, liquidity and convenience

Marcello Pericoli and Marco Taboga ()
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Marco Taboga: Bank of Italy

No 1021, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We conduct an empirical analysis of sovereign bond spreads for a selected number of euro area countries. We analyze several methodologies to measure and to assess the relative importance of three components of sovereign spreads: credit premia, liquidity premia and convenience yields. We find that, except for Germany, credit premia explain the bulk of the level and variability in sovereign spreads, while liquidity premia and convenience yields seem to play a limited role, although they are in several cases statistically significant and they can become economically relevant during short episodes of illiquidity.

Keywords: sovereign spreads; liquidity premia; convenience yields (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2015-07
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1021_15

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