The Russia-Ukraine Conflict and Eurozone Sovereign Risk: A Yield Net Analysis

Zhiwu Hong () and Linlin Niu ()
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Zhiwu Hong: China University of Political Science and Law
Linlin Niu: Xiamen University

No 2026-01-28, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Abstract: This paper examines how the Russia-Ukraine geopolitical risk (GPR) transmits to Eurozone sovereign bond yields using an affine macro-finance yield net model. We find GPR shocks raise inflation expectations immediately with significance and persistence, subsequently lifting sovereign yields most sharply at the medium term, explaining about 30\% of yield variation at a five-year horizon. Surprisingly, transmission is strongest in fiscally robust members, not high-debt countries. This pattern aligns with national commitments to Ukraine, revealing that direct fiscal engagements---enabled by their fiscal space---drive risk pricing, underscoring the monetary-fiscal trade-offs facing policymakers under geopolitical stress.

Keywords: Geopolitical risk; Eurozone; Sovereign risk premia; Fiscal exposure; Affine term structure models (search for similar items in EconPapers)
JEL-codes: C32 E31 E43 F51 G15 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2026-01-28
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Persistent link: https://EconPapers.repec.org/RePEc:wyi:wpaper:002614

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