Measuring Financial Fragmentation in the Euro Area Corporate Bond Market

34 Pages Posted: 5 Apr 2016

See all articles by Guillaume Horny

Guillaume Horny

Banque de France

Simone Manganelli

European Central Bank (ECB)

Benoît Mojon

Bank for International Settlements (BIS)

Date Written: February 1, 2016

Abstract

This paper analyses the determinants of euro area non-financial corporate bonds over the last decade. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008-2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011-2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area.

Keywords: financial integration, credit risk, country premia, fragmentation index

JEL Classification: E43, G12, G24, C23

Suggested Citation

Horny, Guillaume and Manganelli, Simone and Mojon, Benoît, Measuring Financial Fragmentation in the Euro Area Corporate Bond Market (February 1, 2016). Banque de France Working Paper No. 582, Available at SSRN: https://ssrn.com/abstract=2758655 or http://dx.doi.org/10.2139/ssrn.2758655

Guillaume Horny (Contact Author)

Banque de France ( email )

Paris
France

Simone Manganelli

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Frankfurt am Main, 60311
Germany

HOME PAGE: http://www.simonemanganelli.org

Benoît Mojon

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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