The Determinants of Sovereign Bond Yield Spreads in the EMU

Afonso, António; Arghyrou, Michael Georgiou; Kontonikas, Alexandros

doi:10.2139/ssrn.2223140

Cited by 58 publications

(91 citation statements)

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“…The variables which more often appear as significant are the level of GDP, GDP per capita or GDP growth rate (Hilscher and Nosbusch, 2010;Afonso, 2010), fiscal performance , through public debt and budget balance (Dell'Erba and Sola, 2011;Baldacci and Kumar, 2010;Afonso, Arghyrou and Kontonikas, 2012;Afonso, 2010;Amira, 2004;Laubach, 2009;Akitoby and Stratmann, 2006;Gruber and Kamin, 2010), current account balance (Amira, 2004) and monetary policy (Gruber and Kamin, 2010). …”

Section: Literature On Sovereign Spreads' Determinantsmentioning

confidence: 99%

Economic forecasts and sovereign yields

Afonso

Nunes

2015

Economic Modelling

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We assess whether the corrections made to the EC macro and fiscal forecasts (GDP growth rate, inflation, budget balance, debt ratio, current account) have an impact in sovereign yields. We a panel analysis of 15 EU countries (Austria, Belgium, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Sweden), for the period from 1999:1 until 2012:1, and we also analyse each country individually, on the basis of a SUR estimation. We find that corrections in the EC's forecasts impinge on 10-year sovereign bond yields, particularly corrections in fiscal variables, being more pronounced in countries with less favourable economic conditions. The penalization for the yields is higher in corrections for the current and next years than for previous years.

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Section: Literature On Sovereign Spreads' Determinantsmentioning

confidence: 99%

Economic forecasts and sovereign yields

Afonso

Nunes

2015

Economic Modelling

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“…In this paper implied volatility has been used to gauge both regional and global stock market volatility. In particular, the variables VSTOXX and VIX, which measure implied volatility in Eurostoxx-50 and Standard and Poor's 500 index options and have been widely used in the literature by other authors (see, e.g., Afonso, 2012, Aizenman et al, 2013, and Battistini et al, 2013 as measures of uncertainty in the Eurozone and the global financial markets respectively. However, since implied volatility indices were not available for all countries, we opted for the monthly standard deviation of equity returns in each country to capture local stock market volatility.…”

Section: Datamentioning

confidence: 99%

An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis

Gómez‐Puig

Sosvilla‐Rivero

Ramos-Herrera

2014

The North American Journal of Economics and Finance

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We empirically investigate the determinants of EMU sovereign bond yield spreads with respect to the German bund. Using panel data techniques, we examine the role of a wide set of potential drivers. To our knowledge, this paper presents one of the most exhaustive compilations of the variables used in the literature to study the behaviour of sovereign yield spreads and, in particular, to gauge the effect on these spreads of changes in market sentiment and risk aversion. We use a sample of both central and peripheral countries from January 1999 to December 2012 and assess whether there were significant changes after the outbreak of the euro area debt crisis. Our results suggest that the rise in sovereign risk in central countries can only be partially explained by the evolution of local macroeconomic variables in those countries. Besides, without exception, the marginal effects of sovereign spread drivers (specifically, the variables that measure global market sentiment) increased during the crisis compared to the pre-crisis period, especially in peripheral countries. Moreover, the increase in the significance of the banking level of indebtedness and foreign bank's claims in the public sector (mainly in peripheral countries) along with the crisis unfolding seems to highlight the interconnection between private and public debt and thus, between banking and sovereign crises.

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“…Third, liquidity risk has played a role, mainly in the periphery economies during the later stages of the crisis (see e.g. De Santis, 2012; Afonso et al, 2014). Finally, there exist significant cross-country contagion/spill-over effects across euro area government bond markets (see e.g.…”

Section: Introductionmentioning

confidence: 99%

On the time-varying relationship between EMU sovereign spreads and their determinants

et al. 2015

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We use a dynamic multipath general-to-specific algorithm to capture structural instability in the link between euro area sovereign bond yield spreads against Germany and their underlying determinants over the period January 1999 -August 2011. We offer new evidence suggesting a significant heterogeneity across countries, both in terms of the risk factors determining spreads over time as well as in terms of the magnitude of their impact on spreads. Our findings suggest that the relationship between euro area sovereign risk and the underlying fundamentals is strongly timevarying, turning from inactive to active since the onset of the global financial crisis and further intensifying during the sovereign debt crisis. As a general rule, the set of financial and macro spreads' determinants in the euro area is rather unstable but generally becomes richer and stronger in significance as the crisis evolves.JEL: C22, C52, E43, E62, G12.

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The Determinants of Sovereign Bond Yield Spreads in the EMU

Cited by 58 publications

References 50 publications

Economic forecasts and sovereign yields

Economic forecasts and sovereign yields

An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis

On the time-varying relationship between EMU sovereign spreads and their determinants

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