Disappearing government bond spreads in the eurozone – Back to normal?

Paul De Grauwe and Yuemei Ji (yuemei.ji@ucl.ac.uk)

CEPS Papers from Centre for European Policy Studies

Abstract: Since the announcement of the Outright Monetary Transactions (OMT) programme by Mario Draghi, President of the ECB, in 2012, the government bond spreads began a strong decline. This paper finds that most of this decline is due to the positive market sentiments that the OMT programme has triggered and is not related to underlying fundamentals, such as the debt-to-GDP ratios or the external debt position that have continued to increase in most countries. The authors even argue that the market’s euphoria may have gone too far in taking into account the same market fundamentals. They conclude with some thoughts about the future governance of the OMT programme.

Pages: 12 pages
Date: 2014-05
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (11)

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