Sovereign risk premiums in the European government bond market

Kerstin Bernoth (), Juergen von Hagen and Ludger Schuknecht

Journal of International Money and Finance, 2012, vol. 31, issue 5, 975-995

Abstract: This paper provides a study of bond yield differentials among EU government bonds on the basis of a unique data set of issue spreads in the US and DM (Euro) bond market between 1993 and 2009. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premiums which increase with fiscal imbalances and depend negatively on the issuer’s relative bond market size. The start of the European Monetary Union has shifted market attention to deficit and debt service payments as key measures of fiscal soundness and eliminated liquidity premiums in the euro area. With the financial crisis, the cost of loose fiscal policy has increased considerably.

Keywords: Sovereign bonds; Fiscal policy; EMU; Financial crisis (search for similar items in EconPapers)
JEL-codes: E43 E62 G12 H63 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (161)

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Related works:
Working Paper: Sovereign Risk Premiums in the European Government Bond Market (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:5:p:975-995

DOI: 10.1016/j.jimonfin.2011.12.006

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