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The Pricing of Bank Bonds, Sovereign Credit Risk and ECB's Asset Purchase Programmes

Ricardo Branco (), João Pinto () and Ricardo Ribeiro
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Ricardo Branco: Mazars Portugal and Universidade Católica Portuguesa, Católica Porto Business School

No 1, Working Papers de Economia (Economics Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa

Abstract: The 2008 Global financial crisis and the subsequent European sovereign debt crisis deteriorated banks funding conditions and lead to a substitution effect among bond instruments. We examine the pricing of straight, covered and securitization bonds issued by European banks in the 2000-2016 period, with a particular focus on the effect of sovereign credit risk and ECB's asset purchase programmes on spreads. We nd that (i) straight, covered and securitization bonds are priced in segmented markets, (ii) the impact of common pricing determinants on spreads differ significantly between non-crisis and crisis periods, (iii) sovereign credit risk is an important determinant of banks' cost of funding, especially in crisis periods, (iv) ECB's asset purchase programmes exhibited mixed effectiveness in improving banks funding conditions, (v) contractual bond characteristics other than credit ratings, macroeconomic factors and bank characteristics are important determinants of spreads, and (vi) there is evidence of heterogeneity across countries.

Keywords: Straight Bonds; Covered Bonds; Securitization Bonds; Bond Pricing; Sovereign Risk; Asset Purchase Programmes (search for similar items in EconPapers)
JEL-codes: E52 G01 G12 G21 G32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:cap:wpaper:012020

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