Sovereign reputation and yield spreads: A case study on retroactive legislation

Otto Randl and Josef Zechner

No 545, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria's central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.

Date: 2016
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation (2018)
Journal Article: Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:545

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