Bond Spreads and Economic Activity in Eight European Economies

Bleaney, Michael; Mizen, Paul; Veleanu, Veronica

doi:10.1111/ecoj.12288

Cited by 40 publications

(42 citation statements)

References 70 publications

(154 reference statements)

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“…They show instead that their aggregate, security-specific measure of credit risk is a useful leading indicator of real activity. Bleaney et al (2012) extend Gilchrist and Zakrajšek (2012) for non-financial corporate bonds issued in 8 European countries. They also estimate excess bond premia, defined as the difference between the credit spread and a measure of credit risk proxied by distance to default and relate it indicators of economic activity.…”

Section: Introductionmentioning

confidence: 99%

Measuring Financial Fragmentation in the Euro Area Corporate Bond Market

Horny

Manganelli

Mojon

2018

JRFM

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This paper analyses the determinants of euro area non-financial corporate bonds since the early 2000s, so as to gauge deviations from the law of one price. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008–2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011–2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area.

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Section: Introductionmentioning

confidence: 99%

Measuring Financial Fragmentation in the Euro Area Corporate Bond Market

Horny

Manganelli

Mojon

2018

JRFM

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“…1 Our approach replicates the one developed in Gilchrist and Zakrajsek (2012b) for US data. Bleaney et al (2016) have implemented a similar approach for corporate bonds from Austria, Belgium, France, Germany, Italy, the Netherlands, Spain and the UK, yet they focus exclusively on NFC credit spreads, while we highlight the unique role of corporate credit risk for banks.…”

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confidence: 99%

Credit Risk in the Euro Area

Gilchrist

Mojon

2017

Econ J

152

135

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We construct credit risk indicators for euro area banks and non‐financial corporations. These indicators reveal that the financial crisis of 2008 dramatically increased the cost of market funding for both banks and non‐financial firms. In contrast, the prior recession following the 2000 US dot‐com bust led to widening credit spreads of non‐financial firms but had no effect on the credit spreads of financial firms. The 2008 financial crisis also led to a systematic divergence in credit spreads for financial firms across national boundaries. Credit spreads provide substantial predictive content for real activity and lending measures for the euro area as a whole and for individual countries.

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“…Gertler and Lown (1999) and Mody and Taylor (2004) show that credit spreads based on high-yield corporate bonds forecast US GDP growth. Gilchrist et al (2009) Zakrajšek (2012), Faust et al (2013), Krishnamurthy and Muir (2015), and Bleaney et al (2016) support the earlier findings that credit spreads have substantial predictive content, and find that a component in credit spreads attributable to deviations from the usual compensation for default risk strongly predicts a decline in economic activity.…”

Section: ⅰ Introductionmentioning

confidence: 63%