On Creditor Seniority and Sovereign Bond Prices in Europe
Sven Steinkamp () and
No 92, IEER Working Papers from Institute of Empirical Economic Research, Osnabrueck University
The recent increase of interest rate spreads in Europe and their apparent detachment from underlying fundamental variables has generated a debate on multiple equilibria in the sovereign bond market (see Grauwe and Ji (2012)). We critically evaluate this hypothesis, by pointing towards an alternative explanation: the increasing share of senior lenders (IMF, ECB, EFSF, etc.) in the total outstanding government debt of countries in crisis. We illustrate the close relationship between senior tranche lending – including Target2 balances – and recent developments in the sovereign bond market, both graphically and in a formal regression analysis.
Keywords: Government bond spreads; Eurozone; senior tranche lending (search for similar items in EconPapers)
JEL-codes: F34 G12 H81 (search for similar items in EconPapers)
Date: 2012-08-10, Revised 2017-07-25
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Working Paper: On Creditor Seniority and Sovereign Bond Prices in Europe (2013)
Working Paper: On Creditor Seniority and Sovereign Bond Prices in Europe (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:iee:wpaper:wp0092
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