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VOLATILITY OF YIELDS OF GOVERNMENT BONDS AMONG GIIPS COUNTRIES DURING THE SOVEREIGN DEBT CRISIS IN THE EURO AREA

Tomas Heryan () and Jan Ziegelbauer
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Jan Ziegelbauer: Silesian University in Opava

Equilibrium. Quarterly Journal of Economics and Economic Policy, 2016, vol. 11, issue 1, 61-74

Abstract: The aim of the paper is to estimate, how the volatility of yields of the Greek bonds affects yields’ volatilities of bonds in selected European countries during the period of the sovereign debt crisis in the euro area. We obtained data for 10-year bonds in a weekly frequency from January 2006 till the end of December 2014. To make a comparison of pre-crisis period, we firstly investigate a bond yields’ volatility before 15th September 2008, when U.S. Leman Brothers bankrupted and the global financial crisis had been reflected in full. However, the period of the global financial crisis could also negatively affect the development of government bonds. Therefore, the period after Leman Brothers’ bankruptcy has been excluded and our crisis period starts after 23rd April 2010, when Greece asked the IMF for financial help and the sovereign debt crisis had been reflected in full. Volatility models GARCH (1,1), IGARCH (1,1) and TARCH (1,1) were used as an estimation method. To examine the risk premium of all GIIPS economies (Greece, Ireland, Italy, Portugal and Spain), we also compared the whole investigation with the developments of each spread against the yields of German government bonds. Our results clearly proved not only big differences between pre-crisis and crisis period, but also differences in output with the bond yield spreads. It was concluded that there has been a higher impact of the Greek bond yields, as well as yield spreads volatility in 2010 and 2011, while it is on the lower level in pre-crisis period.

Keywords: yield of government bonds; volatility; GIIPS countries; GARCH and TARCH models (search for similar items in EconPapers)
JEL-codes: C58 G01 G15 (search for similar items in EconPapers)
Date: 2016
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