How do Experts Forecast Sovereign Spreads?

Jacopo Cimadomo, Peter Claeys and Marcos Poplawski Ribeiro
Authors registered in the RePEc Author Service: Marcos Poplawski-Ribeiro

No 2016/100, IMF Working Papers from International Monetary Fund

Abstract: This paper assesses how forecasting experts form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the United Kingdom between January 1993 and October 2014, we test whether respondents consider the expected evolution of the fiscal balance—and other economic fundamentals—to be significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. This suggests that credible fiscal plans affect market experts’ expectations and reduce the pressure on sovereign bond markets. In addition, we show that expected fundamentals generally play a more important role in explaining forecasted spreads compared to realized spreads.

Keywords: WP; bond yield; government bond; monetary policy; dependent variable; market expectations; sovereign bond spreads; survey data; Consensus Economics; forecasted spread; sovereign bond bond market; yield US; vis-à-vis Germany; spreads forecast; market spread; sovereign spread; bond yield spread; Fiscal stance; Yield curve; Sovereign bonds; Fiscal space; Inflation; Global (search for similar items in EconPapers)
Pages: 46
Date: 2016-05-20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: How do experts forecast sovereign spreads? (2016)
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