Expectations and systemic risk in EMU government bond spreads

Paolo Canofari, Giancarlo Marini and Giovanni Piersanti

Quantitative Finance, 2015, vol. 15, issue 4, 711-724

Abstract: This paper explores the determinants of 10-year sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro's break up and contagion from Greece were fundamental drivers of sovereign risk premia in peripheral countries.

Date: 2015
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Working Paper: Expectations and Systemic Risk in EMU Government Bond Spreads (2014)
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DOI: 10.1080/14697688.2014.968606

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