Have Sovereign Bond Market Relationships Changed in the Euro Area? Evidence from Italy

Abstract

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COVID-19 related media sentiment and the yield curve of G-7 economies

“…A rapidly growing stream of studies has explored risk spillovers and uncertainty across economies various financial markets and across various assets such as equities, fixed income and commodity markets (e.g., Colombo, 2013 , Conefrey and Cronin, 2015 , Gupta et al, 2018 , Fernández-Rodríguez et al, 2016 , Umar, 2017 , Antonakakis et al, 2018 , Cronin and Dunne, 2019 , Cipollini and Mikaliunaite, 2020 , Liow and Song, 2020 , Riaz et al, 2020 , Zaremba et al, 2021 , Zhao et al, 2021 ). In this respect, many of the existing studies focus their examination on the connectedness and risk spillovers between European Union countries ( Antonakakis and Vergos, 2013 , Claeys and Vasicek, 2014 , Fernández-Rodríguez et al, 2016 , Ehrmann and Fratzscher, 2017 , Greenwood-Nimmo et al, 2017 , BenSaïda, 2018 , Chatziantoniou and Gabauer, 2021 , Umar et al, 2019 ).…”

Sovereign Bond Market Shock Spillover Over Different Maturities: A Journey from Normal to Covid-19 Period

“…Claeys and Vasicek ( 2012 ), Antonakakis and Vergos ( 2013 ), Fernandez-Rodriguez et al ( 2016 ) and Cronin and Dunne ( 2019 ) analyzed the strength and direction of spillover between EU countries. They maintained that the presence of high and significant spillover with heterogeneity between bond markets of the EU has been nurtured by both global financial market conditions and idiosyncratic risk components.…”

“…Apart from these studies, there are also a few extant literatures that rest on analyzing cross-border sovereign bond markets spillover/connectivity (Ahmad et al, 2018 ; Cronin & Dunne, 2019 ; Claeys & Vasicek, 2012 , 2019 ; Fernandez-Rodriguez et al, 2016 ; Antonakakis & Vergos, 2013 ; Tule et al, 2017 ; Sowmya et al, 2016 ; Yang & Hamori, 2015 ; Sensoy et al, 2017 ; Asutay & Hakim, 2018 ; Chen et al, 2020 ; Gao et al, 2021 ; Umar et al, 2021 ; Karkowska & Urjasz, 2021 ; Balli et al, 2022 ). However, many of these studies dealt with sovereign bond market spillover/connectivity, particularly among the erstwhile advanced countries of Europe.…”

On the design of sovereign bond-backed securities

“…We now investigate how a dierent structure in the correlation among States can alter the yield rates of dierent tranches. The assumption of a at correlation structure is not realistic and it is not coherent with the nancial crisis experience: [13,16] during the nancial crisis the correlation among bond returns of non core/core countries was high with some evidence of negative correlation between the two blocks.…”

“…Correlation inside block 1.00, correlation outside 0.27, average correlation 0.6. countries (Austria, Belgium, Finland, France, Germany, The Netherlands). Inside each block we assume a high correlation (1.00) and we assume a uniform correlation among countries of dierent blocks (0.27), see [13] for an analysis of correlation among sovereign bond markets in normal time and bad time. The results are similar to the single block one, shifting even more risk from junior to mezzanine and senior tranches.…”