What drives spreads in the euro area government bond market?

Abstract

"Spreads between euro area government bond yields are related to short-term interest rates, which are in turn related to market liquidity, to cyclical conditions, and to investors' incentives to take risk. In theory, lower interest rates are associated with lower degrees of risk aversion and smaller government bond spreads. Empirically, the Eurosystem's short-term interest rates are positively related to those spreads, which our econometric model finds to include significant and policy-relevant default risk and liquidity risk components." Copyright (c) CEPR, CES, MSH, 2009.

Government bond risk premiums in the EU revisited: The impact of the financial crisis

“…Therefore, data on US corporate-government bond yield spreads can be used as a good proxy for the overall investors' risk attitude. depend on financial market conditions, we add the short-term money market rate in the reference country as a regressor (see Manganelli and Wolswijk, 2009). 7 The sources of the data used are included in the annex.…”

What Explains the Surge in Euro Area Sovereign Spreads During the Financial Crisis of 2007–2009?

“…Several papers also use the debt service ratio, interest payments as a share of GDP (Bernoth et al 2004), a country's credit rating (Manganelli and Wolswijk 2009), and in some cases dummies on fiscal announcements (Afonso and Strauch (2004). Our analysis looks at the role of a country's fiscal position in determining its bond spreads vis-à-vis Germany, but also at whether the announcement of broad based bank rescue packages had some effects on investor's assessment of credit risk (i.e.…”

The Impact of Textual Sentiment on Sovereign Bond Yield Spreads: Evidence from the Eurozone Crisis

“…Studies that find significant effects of credit risk include Codogno et al (2003), Heppke-Falk and Huefner (2004), Bernoth et al (2006), Gomez-Puig (2006), Faini (2006), Beber et al (2009), and Barbosa andCosta (2010), andSchwarz (2014). A number of papers, such as Geyer et al (2004), Bernoth et al (2006), Sgherri and Zoli (2009), Attinasi et al (2009), Barrios et al (2009), Haugh et al (2009, Manganelli andWolswijk (2009), andGerlach et al (2010) conclude that general risk aversion plays a significant role in driving sovereign bond yield spreads.…”