Yield spreads on EMU government Bonds -how the Financial crisis has helped investors to Rediscover Risk

Catharina Klepsch and Timo Wollmershäuser

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This study analyses the determinants of EMU member states’ government bond yield spreads from January 2000 until September 2010. Using a dynamic panel regression approach, the authors show that before the outbreak of the fi nancial crisis investors generally ignored fundamental sovereign bond risk factors. However, with the beginning of the fi nancial crisis yield spreads for many member countries escalated. The results indicate not only that investors began to re-evaluate countries’ credit risks (measured by projections of debt-to- GDP ratios), but also that risk aversion in the markets, which increased signifi cantly during the crisis, became a major determinant of sovereign bond spreads.

Date: 2011
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Citations: View citations in EconPapers (9)

Published in Intereconomics 3 46(2011): pp. 169-176

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Journal Article: Yield spreads on EMU government bonds — How the financial crisis has helped investors to rediscover risk (2011)
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