Cross-Border Asset Holdings and Comovements in Sovereign Bond Markets

46 Pages Posted: 6 Oct 2015 Last revised: 23 Mar 2022

See all articles by Hossein Asgharian

Hossein Asgharian

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies

Lu Liu

Stockholm Business School, Stockholm University; Knut Wicksell Centre for Financial Studies

Marcus Larsson

Handelsbanken

Date Written: March 7, 2018

Abstract

We analyze the importance of different asset holdings for the interdependence of the yield curves in the Euro area using a spatial VAR model. We find that the cross-border holdings of long-term debt and bank lending are important for the interdependence. We also find that comovement in the Euro area declines after 2008. We show that this decline is not related to the difference among countries in reacting to shocks from the US during the financial crisis. Rather, it largely reflects the segmentation between GIIPS and non-GIIPS countries. Our analysis of dispersion in sovereign-CDS-spread term structure shows that the differential in sovereign creditworthiness in the Euro area is a main driver of the yield-curve divergence after 2008.

Keywords: yield-curve factors, cross-border asset holding, spatial dependence, Euro bond markets, sovereign credit default swap

JEL Classification: E43, G15, C31

Suggested Citation

Asgharian, Hossein and Liu, Lu and Larsson, Marcus, Cross-Border Asset Holdings and Comovements in Sovereign Bond Markets (March 7, 2018). Journal of International Money and Finance, Vol. 86, No. 9, 2018, Available at SSRN: https://ssrn.com/abstract=2669388 or http://dx.doi.org/10.2139/ssrn.2669388

Hossein Asgharian

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies ( email )

P.O. Box 7082
S-220 07 Lund
Sweden
046-222-86-87 (Phone)

Lu Liu (Contact Author)

Stockholm Business School, Stockholm University ( email )

Sweden
+46(0)721489000 (Phone)

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Marcus Larsson

Handelsbanken ( email )

SE-106 70 Stockholm
Sweden

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