Fragmentation and Heterogeneity in the Euro – Area Corporate Bond Market: Back to Normal?

CFS Working Paper No. 530

31 Pages Posted: 19 Feb 2016

Date Written: February 16, 2016

Abstract

We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2,400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium.

Keywords: Corporate bond market; Sovereign debt crisis, financial fragmentation

JEL Classification: G32; G38

Suggested Citation

Zaghini, Andrea, Fragmentation and Heterogeneity in the Euro – Area Corporate Bond Market: Back to Normal? (February 16, 2016). CFS Working Paper No. 530, Available at SSRN: https://ssrn.com/abstract=2734665 or http://dx.doi.org/10.2139/ssrn.2734665

Andrea Zaghini (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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