Decomposing Euro Area Sovereign Spreads: Credit, Liquidity and Convenience

52 Pages Posted: 8 Nov 2015

Date Written: July 21, 2015

Abstract

We conduct an empirical analysis of sovereign bond spreads for a selected number of euro area countries. We analyze several methodologies to measure and to assess the relative importance of three components of sovereign spreads: credit premia, liquidity premia and convenience yields. We find that, except for Germany, credit premia explain the bulk of the level and variability in sovereign spreads, while liquidity premia and convenience yields seem to play a limited role, although they are in several cases statistically significant and they can become economically relevant during short episodes of illiquidity.

Keywords: sovereign spreads, liquidity premia, convenience yields

JEL Classification: G12

Suggested Citation

Pericoli, Marcello and Taboga, Marco, Decomposing Euro Area Sovereign Spreads: Credit, Liquidity and Convenience (July 21, 2015). Bank of Italy Temi di Discussione (Working Paper) No. 1021. Available at SSRN: https://ssrn.com/abstract=2687131 or http://dx.doi.org/10.2139/ssrn.2687131

Marcello Pericoli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

HOME PAGE: http://www.bancaditalia.it

Marco Taboga

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
52
Abstract Views
417
rank
377,172
PlumX Metrics