Determinants of the Government Bond Yield: Evidence From a Highly Euroised Small Open Economy

Abstract

This paper analyses the relationship between bond market, macroeconomic fundamentals and a set of additional covariates in the Republic of Croatia, a small open economy with a very high and persistent level of euroization. The sample ranges from the year 2001 to 2017. Ordinary least squares regression is applied on the quarterly dataset to examine the major drivers of nominal yields of government bonds, whereas Multiple Breakpoint Tests are used to determine structural breaks in the variables. The results corroborate theoretical knowledge and suggest a significant effect of fiscal and financial determinants on bond yields. Variables presenting macroeconomic fundamentals explain a substantial part of Croatian trends. Therefore, policymakers seeking to improve macroeconomic conditions should learn from multi-causal studies involving these variables before setting their policies.

Determinants of Vietnam Government Bond Yield Volatility: A GARCH Approach

“…Third, it may be the case that the political stability and robust economic growth during the past decade have contributed to enhance Vietnam's creditworthiness, which in turn leads to lower borrowing costs. Nevertheless, this finding is in agreement with several studies that show that fiscal position and government bond yield are negative associated (Gruber & Kamin, 2012;Pham, 2014, Zaja et al, 2018.…”

“…For instance, in the study of sovereign bond yields in emerging Asia over the period 1994-2012, Pham (2014 claims that the bond yields are weakly and negatively correlated with the changes in public debt. Zaja et al (2018), in the discussion of the relationship between fundamentals and bond market in the Republic of Croatia, report that in the pre-crisis period (2001Q3-2008Q2) and in the first period of the crisis (2008Q3-2012Q3), governmet debt in GDP shows a negative connection with bond yields and later (2012Q4-2017Q4) they are positively correlated. The authors conclude that the influence of public debt on bond yields are ambiguous and depend on other external factors.…”

“…Much research on the determinants of government bond yields apply various regression analysis such as feasible generalized least-square estimator (Giordano et al, 2012), OLS (Radier et al, 2016;Zaja et al, 2018), and fixed or random effect model (Martinez et al, 2013). At the same time, several studies acknowledge the existence of volatility in government bond yields and a conditional heteroskedasticity in the covariance between stock returns and bond yields (Balli, 2009;De Goeij & Marquering, 2004).…”

“…It is likely that the government bond yield in every single country is adjusted according to different government monetary policy and various economic conditions. There are also several studies conducted on government bond yields and the macroeconomic variables in emerging countries (Jaramillo & Weber, 2013;Pham, 2014;Zaja, Jakovcevic & Visic, 2018). However, while similar to studies in advanced countries, to date there has been little agreement on the impact of macroeconomic fundamentals on the bond yield.…”

The Impacts of Fiscal and Macroeconomic Factors on Vietnam Government Bond Yield

“…Most of the coefficients are negative. This is in line with (Mihelja et al, 2018;Zhou, 2021). The reason for it is that based on the fisher effect, the negative association between inflation and real interest rate occurs when the nominal interest rate frequently remains unchanged.…”