Determinants of sovereign bond yields: the role of fiscal and external imbalances

Melika Ben Salem and Barbara Castelletti ()

Rue de la Banque, 2017, issue 53

Abstract: The rise in sovereign bond yields observed in the so-called “periphery”euro area countries from 2008 onwards can potentially be attributed to significant and rising levels of external government liabilities coupled with already high levels of public debt. The results of our estimations show that this combination of factors better explains the increase in risk premiums than fiscal variables alone. In particular, deterioration in net international investment positions to below a threshold of –50% of GDP most likely prompted an abrupt revision of market expectations. Investors appear to impose a greater penalty on countries with a “twin deficit”, that is countries with both fiscal and external deficits. One implication that can be derived from this is that periphery countries could reduce the risk premiums on their public debt by bringing their external balances back to more sustainable levels.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... ue_53_2017-12_en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:rueban:2017:53

Access Statistics for this article

More articles in Rue de la Banque from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().