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A tale of fragmentation: corporate funding in the euro-area bond market

Andrea Zaghini ()
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Andrea Zaghini: Bank of Italy

No 1104, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Corporations of different euro-area countries faced noticeably different costs of funding in the bond market during the prolonged period of financial instability that started in 2007. We identify the determinants of corporate bond yield spreads in order to isolate country-specific effects as indicators of market fragmentation. Our evidence hints at a disorderly process of reassessment of corporate credit risk since 2007, with country-specific spreads vis-à-vis Germany becoming strongly positive for issuers located in other euro-area countries (Ireland, Italy, Portugal and Spain, in particular). After the introduction of the non-conventional monetary policy tool named OMT, the spreads declined considerably, but fragmentation disappeared only in the most recent period characterized by expectations and the actual deployment of ECB quantitative easing.

Keywords: credit risk; corporate bonds; market fragmentation; sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: G32 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2017-02
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