Macro News and Bond Yield Spreads in the Euro Area

27 Pages Posted: 2 Oct 2014

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Fabio Spagnolo

Brunel University London - Economics and Finance

Nicola Spagnolo

Brunel University London - Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

This paper analyses the effects of newspaper coverage of macro news on the spread between the yield on the 10-year German Bund and on sovereign bonds in eight countries belonging to the euro area (Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) using daily data for the period 1999-2014. The econometric analysis is based on the estimation of a VAR-GARCH model. The results can be summarised as follows. Negative news have significant positive effects on yield spreads in all PIIGS countries but Italy before September 2008; markets respond more to negative news, and their reaction has increased during the recent financial crisis. News volatility has a significant impact on yield spread volatility, the effects being more pronounced in the case of negative news and bigger in the most recent crisis period, especially in the PIIGS countries. Further, the conditional correlations between yield spreads and negative news are significant and positive, and their increase in absolute value during the financial crisis (especially in the PIIGS countries) indicates a higher sensitivity of yield spreads to negative releases.

Keywords: News, Yield Spreads, Volatility Spillovers, VAR-GARCH model

JEL Classification: C32, F36, G15

Suggested Citation

Caporale, Guglielmo Maria and Spagnolo, Fabio and Spagnolo, Nicola, Macro News and Bond Yield Spreads in the Euro Area (September 2014). DIW Berlin Discussion Paper No. 1413. Available at SSRN: https://ssrn.com/abstract=2503880 or http://dx.doi.org/10.2139/ssrn.2503880

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
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+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Fabio Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816383 (Phone)
+44 1895 203303 (Fax)

HOME PAGE: http://www.brunel.ac.uk/depts/ecf/Staff/SpagnoloF/Main.htm

Nicola Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

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