The Determinants of Sovereign Bond Yield Spreads in the EMU

39 Pages Posted: 30 May 2015

See all articles by Antonio Afonso

Antonio Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics)

Michael Arghyrou

University of Piraeus

Alexandros Kontonikas

University of Glasgow - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 29, 2015

Abstract

We use a panel of euro area countries to assess the determinants of long-term sovereign bond yield spreads over the period 1999.01-2010.12. We find that, on top of the fundamentals themselves, changes in the sensitivity of bond prices to fundamentals are also necessary to explain yields over the crisis period. We also find that the menu of macro and fiscal risks priced by markets has been significantly enriched since March 2009, including international financial risk and liquidity risk. Finally, we find that sovereign credit ratings are statistically significant in explaining spreads, yet compared to macro- and fiscal fundamentals their role is limited.

Keywords: sovereign yields, government debt, panel analysis, credit ratings

JEL Classification: C23, E62, H50

Suggested Citation

Afonso, Antonio and Arghyrou, Michael and Kontonikas, Alexandros, The Determinants of Sovereign Bond Yield Spreads in the EMU (May 29, 2015). ECB Working Paper No. 1781. Available at SSRN: https://ssrn.com/abstract=2611958

Antonio Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://https://www.iseg.ulisboa.pt/aquila/homepage/aafonso

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://https://uece.rc.iseg.ulisboa.pt/

Michael Arghyrou

University of Piraeus ( email )

Karaoli & Dimitriou 80
Piraeus, 18534
Greece
19 (Fax)

HOME PAGE: http://ideas.repec.org/e/par104.html

Alexandros Kontonikas

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

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