The determinants of Greek bond yields: an empirical study before and during the crisis

Abstract

Purpose – The purpose of this paper is to uncover the determinants of the ten-year Greek bond yield in both pre- and post-crisis period that caused the unprecedented event, a country member of the Euro area, not to be able to tap the market. In doing so, following the recent literature, the authors employ two major set of variables, market driven and macroeconomic variables and the authors find two classes of results. Among others, debt to GDP ratio, deficit, inflation and unemployment, play a more significant role as determinants of the ten-years Greek bond yield during the crisis and second, the ten-years yield exceeds that fundamentals that price in. Moreover, the authors explicitly test for the impact of speculation on the yield. These results are in line with other empirical studies and shed line to the dramatic evolution of the bond yields in terms of fiscal consolidation era as it is in Greece. Since the Greek debt crisis is ongoing more than five years, policy makers should make substantial changes in their macro projections taking under consideration more the variables of inflation and unemployment, and release a viable concrete plan of debt relief, which among other, secures the success of the macro projections. Design/methodology/approach – Empirical study on Greek debt crisis applying both macroeconomics and market indicators in separated estimations. Findings – Debt to GDP ratio, deficit, inflation and unemployment among others, play a more significant role as determinants of the ten-years Greek bond yield during the crisis than had before and second, during the crisis ten-years yield is above the price that fundamentals would imply. Originality/value – To the best of the authors’ knowledge it is the first time that the authors study the Greek debt crisis applying fundamental and market factors.

Pengaruh Faktor Makro Ekonomi, Faktor Likuiditas Dan Faktor Eksternal Terhadap Yield Obligasi Pemerintah Indonesia

“…Hasil uji IRF pada gambar 4 menunjukkan bahwa yield obligasi dengan tenor 2 tahun, 5 tahun dan 10 tahun menanggapi perubahan yang terjadi pada CPI. Hasil temuan ini sesuai dengan teori dari Chionis et al, (2014) Temuan lain juga menyatakan bahwa perubahan suku bunga internasional dapat memengaruhi aliran modal ke dalam negara berkembang (Min, 1998). Pada saat adanya kenaikan tingkat ECB, maka hal tersebut dapat membuat ekspektasi bahwa para investor asing akan mencari dananya pada pada negara-negara berkembang.…”

Option valuation and hedging in markets with a crunch

“…For analyzing asymmetries in the nexus of implied volatility index and equity index, see Shaikh and Padhi (2016). There are also several recent articles that deal with financial crisis; among others, Theobald (2015), Cayon et al (2016) and Chionis et al (2016) can be mentioned.…”

Quantitative models of sovereign risk and state-contingent debt

“…and global financial risk (as proxied by the logarithm of the VIX) also increased in importance after 2011. Unlike Chionis et al (2016), Afonso et al (2013) find that economic growth is statistically significant for Greece during the debt crisis period.…”

“…Interestingly, the price of oil has been included, as unlike other advanced economies Greece is an oil-dependent economy. 73 More recently, Chionis et al (2016) study the determinants of Greek government bond yields prior to and after the crisis, distinguishing between "market-driven" and macroeconomic variables and find that the debt-to-GDP ratio, the budget deficit, inflation and unemployment were the main 73 The effect of the price of oil was found to be minimal.…”

“…section will combine the insights and findings on Greek spreads offered by theArghyrou and Tsoukalas (2011),Gibson et al (2012) andChionis et al (2016) with panel-data-based findings on Greek spreads.In an attempt to develop a simple model of the Greek debt crisis and abstracting from the formulation of a structural empirical model,Arghyrou and Tsoukalas (2011) study the pre-bailout era (2000-2010), breaking it down into six periods based on global financial market developments and changes in Greek government bond yield spreads over the German Bund: i. During 2000-summer of 2007, Greek participation in the EMU led to a convergence in sovereign bond yields, giving rise to a spread of 25bps for the 10-year GGB; ii.…”