Debt Sustainability Measures and Their Explanatory Power for Estimating Government Bond Yields
28 Pages Posted: 31 May 2012 Last revised: 2 Jun 2012
Date Written: August 30, 2011
The purpose of this article is to explain changes in sovereign yields using conventional “rating agency style” measures in comparison to contingent claims valuation-based measures. I will show that – in contrast to most conventional sovereign credit quality measures – contingent claims valuation-based credit measures have significant power in explaining the spread between 10-year sovereign yields and the expected future monetary policy rate.
Keywords: Sovereign debt, debt sustainability, contingent claims approach, sovereign long-term interest rates, dynamic panel models
JEL Classification: C23, E62, F34, G13, H63
Suggested Citation: Suggested Citation