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
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: Suggested Citation