Sovereign Bond Spreads in the New European Union Countries

Alexopoulou, Ioana; Bunda, Irina; Ferrando, Annalisa

doi:10.1002/9781118267073.ch37

Cited by 1 publication

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“…Hence, the GPR index captures the sovereign risk through country bond yields much more than bond spreads (since the OIS, to compute the spread, refers to a common reference EMU yield). Alexopoulou et al (2009) described the pre‐eminence of the CDS (spreads) market relative to the fading sovereign bond yield spreads market because the former is more concentrated and its price displays a higher correlation with peer markets during turbulent times and because of the idiosyncratic nature of the later market. Hence, the informational content of the CDS markets is stronger than that of the government bond market, a result we also found in this paper.…”

Section: Main Empirical Resultsmentioning

confidence: 99%

Sovereign credit and geopolitical risks during and after the EMU crisis

et al. 2023

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This paper focuses on the sovereign crisis of the Euro debt crisis era, and we address the existence of the relationship of CDS and bond markets sovereign credit risk pricing for selected core and periphery EMU countries, during and after the 2009 EMU crisis. We study this relationship in conjunction to geopolitical risk as a measure of macroeconomic uncertainty. We use daily observations for several bond maturities and CDS premium with reference to the core (France and Germany) versus periphery EMU countries (Portugal, Italy, Ireland Spain, and Greece) for the period 2009 to 2014. To measure global geopolitical risk, we employ the Caldara and Iacoviello (2022) global geopolitics index (GPR). Using alternative econometric approaches, we find adequate evidence of volatility spillovers between the geopolitical risk index and sovereign risk markets mainly during the crisis period (2009–2012) and weaker during the easing of the eurozone debt crisis period (2012–2014). Moreover, based on Granger causality the estimation of the short‐ term dynamics reveals a significant linkage during the post‐crisis period rather than during crisis. During the crisis period, we found significant dynamic responses between GPR and bond yields.

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Section: Main Empirical Resultsmentioning

confidence: 99%