New evidence on the macroeconomic, fiscal and political drivers of sovereign bond spreads in the EMU

Frederico Silva Leal

No 2026/0402, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper assesses the relevance of macroeconomic, fiscal and political factors as determinants of sovereign yield spreads for 15 Euro Area Member States, using quarterly data for the period Q1:1999–Q4:2024. The results show that fiscal fundamentals, inflation and liquidity stress are the main drivers of spreads, while the QE regime reduced the sensitivity of spreads to debt levels. Political influences are selective: electoral periods raise sovereign risk only in highly indebted countries, whereas liberalising reforms are associated with lower spreads. Overall, the findings highlight the regime-dependent nature of sovereign risk pricing and provide updated evidence on how fiscal and political information is incorporated under different policy environments, offering a clearer understanding of how markets reassess sovereign risk as institutional and macro-financial conditions evolve.

Keywords: Sovereign Spreads; Fiscal Policy; Politics; EMU (search for similar items in EconPapers)
JEL-codes: D72 E43 E62 H63 (search for similar items in EconPapers)
Date: 2026-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0402_2026.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp04022026

Access Statistics for this paper

More papers in Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa ISEG - Lisbon School of Economics and Management, REM, R. Miguel Lupi, 20, LISBON, PORTUGAL.
Bibliographic data for series maintained by Sandra Araújo ().