On Creditor Seniority and Sovereign Bond Prices in Europe

Sven Steinkamp () and Frank Westermann
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Sven Steinkamp: Universitaet Osnabrueck, http://www.iew.uni-osnabrueck.de/

No 92, IEER Working Papers from Institute of Empirical Economic Research, Osnabrueck University

Abstract: The recent increase of interest rate spreads in Europe and their apparent detachment from underlying fundamental variables has generated a debate on multiple equilibria in the sovereign bond market (see Grauwe and Ji (2012)). We critically evaluate this hypothesis, by pointing towards an alternative explanation: the increasing share of senior lenders (IMF, ECB, EFSF, etc.) in the total outstanding government debt of countries in crisis. We illustrate the close relationship between senior tranche lending – including Target2 balances – and recent developments in the sovereign bond market, both graphically and in a formal regression analysis.

Keywords: Government bond spreads; Eurozone; senior tranche lending (search for similar items in EconPapers)
JEL-codes: F34 G12 H81 (search for similar items in EconPapers)
Pages: 26
Date: 2012-08-10, Revised 2017-07-25
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: On Creditor Seniority and Sovereign Bond Prices in Europe (2013)
Working Paper: On Creditor Seniority and Sovereign Bond Prices in Europe (2012)
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