Liquidity and credit risk premia in government bond yields

Jacob Ejsing, Magdalena Grothe and Oliver Grothe

No 1440, Working Paper Series from European Central Bank

Abstract: This paper quantifies liquidity and credit premia in German and French government bond yields. For this purpose, we estimate term structures of government-guaranteed agency bonds and exploit the fact that any difference in their yields vis-`a-vis government bonds can be attributed to differences in liquidity premia. Adding the information on risk-free rates, we obtain model-free and model-based gauges of sovereign credit premia, which are an important alternative to the information based on CDS markets. The results allow us to quantify the price impact of so-called JEL Classification: E44, G12, G01

Keywords: bond markets; liquidity premium; sovereign credit risk; state space models; yield curve modeling (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk and nep-upt
Note: 807173
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20121440

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