Financial indicators signalling correlation changes in sovereign bond markets

Roberto De Santis () and Michael Stein

No 1746, Working Paper Series from European Central Bank

Abstract: We use a Smooth Transition Conditional Correlation GARCH (STCC-GARCH) model applied to the euro area monetary policy rates and sovereign yields of Italy, Spain and Germany at 5-year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis regime. We show that the threshold to a crisis regime for Italy and Spain is reached when (i) their 5-year sovereign yield spreads amount to 80-90 basis points; (ii) their 5-year CDS spreads amount to 120-130 basis points or (iii) the 5-year spread between the Kreditanstalt f JEL Classification: G12, G15, F36

Keywords: correlation breakdowns; government bonds; monetary policy; multivariate GARCH; regime changes (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-eec
Note: 185689
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Citations: View citations in EconPapers (2)

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Journal Article: Financial indicators signaling correlation changes in sovereign bond markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20141746

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