How effective are sovereign bond-backed securities as a spillover prevention device?

Cronin, David; Dunne, Peter G.

doi:10.1016/j.jimonfin.2019.05.001

Cited by 10 publications

(2 citation statements)

References 27 publications

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“…(2020) derive market‐implied loss distributions, and find that when s = 20% the senior security displays considerably smaller levels of value‐at‐risk and expected shortfall than German government debt, although in a scenario‐based approach (in which severe recessions become more frequent) the safety threshold rises to s * = 35%. Cronin and Dunne (2019) adopt techniques developed by Diebold and Yilmaz (2012) to assess spillovers in holding period returns from high‐risk securities to the senior tranche of pool‐first securitization. They find that a subordination level of 30% is effective in insulating holders of the senior tranche from negative shocks to holding period returns.…”

Section: Safety In Bad Timesmentioning

confidence: 99%

Bridge over Troubled Monetary Union: A Reply to De Grauwe & Ji

Langfield

2020

J of Common Market Studies

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Section: Safety In Bad Timesmentioning

confidence: 99%

Bridge over Troubled Monetary Union: A Reply to De Grauwe & Ji

Langfield

2020

J of Common Market Studies

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“…According to the intention of the ESRB, SBBS would address some of the issues encountered during the Euro crisis. The existence of a safe asset obtained as a senior tranche of SBBS could also help to weaken the bank-sovereign vicious circle (see [5,12]): banks could hold senior tranches of SBBS as safe asset instead of government bonds and this would help them to hold a diversied portfolio of government bonds reducing the home bias phenomenon.…”

Section: Introductionmentioning

confidence: 99%

On the design of sovereign bond-backed securities

et al. 2021

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In this paper, we analyze Sovereign Bond-Backed Securities in the Euro area, concentrating our attention on the return of the different tranches and on their riskiness. We show that as the correlation level among States increases, the yield rate of senior tranches increases while the yield rate of junior tranches decreases. A similar effect is observed when introducing a block dependence structure with high correlation among States belonging to the same block. Introducing a nonzero recovery rate, as opposed to a null recovery rate, decreases the yield rate of senior tranches and increases the yield rate of junior tranches. We compute the loss distribution and the Value at Risk (VaR) associated with the market risk of retaining the different tranches of the bond. We also analyze the possibility of reaching a safe asset through pooling tranches of government bonds of different States. In summary, we show that the issue in reaching a comprehensive and safe offering through the securitization of government bonds is not the safety of senior tranches but the risk of the junior ones.

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

Cronin

Dunne

2019

Intereconomics

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How effective are sovereign bond-backed securities as a spillover prevention device?

Cited by 10 publications

References 27 publications

Bridge over Troubled Monetary Union: A Reply to De Grauwe & Ji

Bridge over Troubled Monetary Union: A Reply to De Grauwe & Ji

On the design of sovereign bond-backed securities

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

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