The determinants of sovereign bond yield spreads in the EMU

Antonio Afonso, Michael Arghyrou and Alexandros Kontonikas ()

No 2012/36, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: We use a panel of euro area countries to assess the determinants of long-term sovereign bond yield spreads over the period 1999.01-2010.12. We find that, unlike the period preceding the global financial crisis, European government bond yield spreads are wellexplained by macro- and fiscal fundamentals over the crisis period. We also find that the menu of macro and fiscal risks priced by markets has been significantly enriched since March 2009, including the risk of the crisis’ transmission among EMU member states, international risk and liquidity risk. Finally, we find that sovereign credit ratings are statistically significant in explaining spreads, yet compared to macro- and fiscal fundamentals their role is limited. JEL Classification: C23, E62, H50.

Keywords: sovereign yields; government debt; panel analysis; credit ratings (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-eec and nep-fmk
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Citations: View citations in EconPapers (51)

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Related works:
Working Paper: The determinants of sovereign bond yield spreads in the EMU (2015)
Working Paper: The determinants of sovereign bond yield spreads in the EMU (2012)
Working Paper: The determinants of sovereign bond yield spreads in the EMU (2012)
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