The Determinants of Sovereign Bond Yield Spreads in the EMU

By António Afonso, M. Arghyrou, Alexandros Kontonikas. Social Science Research Network, 2012

117 citations recorded by the source corpus.

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, unlike the period preceding the global financial crisis, European government bond yield spreads are well explained by macro- and fiscal fundamentals 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 the risk of the crisis’ transmission among EMU member states, international 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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/ed3123082b92dd6a5432b0cf930e951876074be6

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Citations in the corpus

• Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019, methodology): “The literature argues that there are three types of potential determinants that may affect spreads (Attinasi et al., 2009; Afonso et al., 2012): credit risk (i.e., a country's creditworthiness as reflected by its fiscal and macroeconomic position), liquidity risk (i.e., the size and depth of a…”