Sovereign Bond Spreads determinants during the last financial crisis: The European case
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Dec 2, 2016
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Abstract
This paper identifies the main determinants of sovereign bonds spreads,
considering the German and US government bonds as benchmarks, for countries within the European Union and the European Monetary Union,
from 2004 to 2011. The econometric methodology of panel data with fixed
effects is applied, and the results indicate high adjustments in the face
of the different benchmarks. The financial crisis shows a higher impact
in those countries within the Eurozone. Future lines of research could
contemplate a broader period of study, include more macroeconomic
variables and group the countries according to the similarity of their
fundamentals to conduct a more exhaustive analysis of the debt markets.
considering the German and US government bonds as benchmarks, for countries within the European Union and the European Monetary Union,
from 2004 to 2011. The econometric methodology of panel data with fixed
effects is applied, and the results indicate high adjustments in the face
of the different benchmarks. The financial crisis shows a higher impact
in those countries within the Eurozone. Future lines of research could
contemplate a broader period of study, include more macroeconomic
variables and group the countries according to the similarity of their
fundamentals to conduct a more exhaustive analysis of the debt markets.
Keywords
crise financeira, dados de painel, eurozona, spreads de bônus soberanossovereign bond spreads, euro area, financial crisis, panel data.spreads de bonos soberanos, euro área, crisis financiera, datos de panel.
References
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Arghyrou M.G., and Kontonikas, A. (2011). The EMU Sovereign-debt crisis: Fundamentals, expectations and contagion. European Economy, 436, 1725-3187.
Arora, V., and Cerisola, M. (2001). How does U.S. monetary policy influence sovereign spreads in emerging markets? IMF Staff Papers, 48 (3), 474-498.
Aβmann, C., and Boysen-Hogrefe J. (2009). Determinants of government bond spreads in the euro area – in good times as in bad. Kiel Institute for the World Economy, Working Paper 1548.
Baldacci, E., Gupta, S., and Mati, A. (2008). Is (still) mostly fiscal? Determinants of sovereign spreads in emerging markets. IMF Working Papers 08/259, 1-23.
Bariviera, AF, Guercio, MB, and Martinez, LB. (2012). A comparative analysis of the informational efficiency of the fixed income market in seven European countries. Economics Letters, 116 (3), 426-428.
Barrios, S., Iversen, P., Lewyowska, M., and Setze, R. (2009). Determinants of intra-euro área government bond spreads during the financial crisis. European Economy, 388, 1-26.
Beber, A., Bryt, M., and Kavajecz, K. (2009). Flight-to-quality or flight-to-liquidity? Evidence from the euro-area bond market. Review of Financial Studies, 22, 925-957.
Bernoth, K., von Hagen J., and Schuknecht, L. (2004). Sovereign risk premiums in the European government bond market. European Central Bank, Working Paper 369, 1-39.
Bernoth, K., and Erdogan, B. (2012). Sovereign bond yield spreads: A time varying coefficient approach, Journal of International Money and Finance, 31, 639-656.
Bianchi (2016). Sovereign risk premia and the international balance sheet: Lessons from the European Crisis. Open Economic Review, 27, 471-493.
Blot, C., Ducoudré, B., and Timbeau, X. (2016). Sovereign debt spread and default in a model with self-fulfilling prophecies and asymmetric information. Journal of Macroeconomics, 47, 281-299.
Codogno, L., Favero, C., and Missale, A. (2003). Yield spreads on EMU government bonds. Economic Policy, October, 503-532.
Costantini, M., Fragetta, M., and Giovanni, M. (2014). Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective. European Economic Review, 70, 337-349.
Dailami, M., Masson, P.R., and Padou, J.J. (2005). Global monetary conditions versus country- specific factors in the determination of emerging market debt spreads. The World Bank Policy Research, 3626, 1-31.
Eichengreen, B., and Mody, A. (1998). What explains changing spreads on emerging markets debt: Fundamentals or market sentiment? NBER Working Paper, 6408, 1-45.
Fatih, Ö., Erdal, Ö., and Gülbin, Ş. (2009). Emerging market sovereign spreads global financial conditions y US macroeconomic news. Economic Modelling, 26, 526-531.
Geyer, A., Kossmeier, S., and Pichler, S. (2004). Measuring systematic risk in EMU spreads, Review of Finance, 8 (2), 171-197.
Gómez-Puig, M. (2009). Systemic and idiosyncratic risk in EU-15 Sovereign yield spreads after seven years of Monetary Union. European Financial Management, 15, 971-1000.
Grammatikos, T., and Vermeulen, R. (2011). Transmission of the financial sovereign debt crises to the EMU: Stock Prices, CDS spreads and Exchange Rates. Journal of International Money and Finance, 31 (3), 517-533.
Grandes, M. (2007). The determinants of sovereign bond spreads: Theory and facts from Latin America, Cuadernos de Economía, 44, 151-181.
JPMorgan (2001). Government Bond Index Technical Document. Kamin, S.B., and von Kleist, K. (1999). The evolution and determinants of emerging market credit spreads in the 1990s. BIS Working Papers, 68, 1-34.
Kaminsky, G., and Schmukler, S. (2002). Emerging market instability: Do sovereign ratings affect country risk and stock returns? The World Bank Economic Review, 16 (2), 171-195.
Klepsch, C., and Wollmershauser, T. (2011). Yield spreads on EMU government bonds. How the financial crisis has helped investors to rediscover risk. Intereconomics, 46 (3), 169-176.
Kohonen, A. (2014). Transmission of government default risk in the Eurozone. Journal of International Money and Finance, 47, 71-85.
Lemmen, J.J., and Goodhart, C.A. (1999). Credit risks y European government bond markets: A panel data econometric analysis, Eastern Economic Journal, 25 (1), 77-105.
Maltritz, D. (2012). Determinants of sovereign yield spreads in the Eurozone: A Bayesian approach, Journal of International Money and Finance, 31, 657-672.
Manganelli, S., and Wolswijk, G. (2009). What drives spreads in the Euro area government bond market? Economic Policy, April, 193-240.
Min, H. (1998). Determinants of emerging market bond spread. Do economic fundamentals matter?, Policy Research Working Paper, 1899, 1-31.
Pagano, M. (2004). The European bond markets under EMU, Oxford Review of Economic Policy, 20 (4), 531-554.
Reinhart, C., Kaminsky, G, and Lizondo, S. (1998). Leading indicators of currency crises, International Monetary Fund, 45 (1), 1-48.
Rowland, P., and Torres, J.L. (2004). Determinants of spread and creditworthiness for emerging market sovereign debt: A panel data study, Banco de la República, Borradores de Economía, 295, 1-55.
Schucknecht, L., von Hagen, J., and Wolswijk, G. (2009). Government risk premiums in the bond market: EMU and Canada. European Journal of Political Economy, 25, 371-384.
Schuknecht, L., von Hagen, J., and Wolswijk, G. (2010). Government bond risk premiums in the EU revisited: The impact of the financial crisis. European Central Bank. Working paper, 1152, 1-27.
Sgherri S., Zoli E. (2009). Euro area sovereign risk during the crisis, IMF Working Paper /09/222, 1-22.
Terceño-Gómez, A., Martinez, L.B., Sorrosal-Forradellas, M., and Guercio, M.B. (2015). Sovereign bond spreads and economic variables of European Countries under the analysis of self-organizing maps, Scientific Methods for the Treatment of Uncertainty in Social Sciences 377 of the series Advances in Intelligent Systems and Computing, Nº 377, 347-358.
Vayanos D. (2004). Flight to quality, flight to liquidity, and the pricing of risk. NBER- Working Papers 10327, 1-54.
Von Hagen, J, Schuknecht, L, and Wolswijk, G. (2011). Government bond risk premiums in the EU revisited: The impact of the financial crisis. European Journal of Political Economy, 24, 36-43.
Arghyrou M.G., and Kontonikas, A. (2011). The EMU Sovereign-debt crisis: Fundamentals, expectations and contagion. European Economy, 436, 1725-3187.
Arora, V., and Cerisola, M. (2001). How does U.S. monetary policy influence sovereign spreads in emerging markets? IMF Staff Papers, 48 (3), 474-498.
Aβmann, C., and Boysen-Hogrefe J. (2009). Determinants of government bond spreads in the euro area – in good times as in bad. Kiel Institute for the World Economy, Working Paper 1548.
Baldacci, E., Gupta, S., and Mati, A. (2008). Is (still) mostly fiscal? Determinants of sovereign spreads in emerging markets. IMF Working Papers 08/259, 1-23.
Bariviera, AF, Guercio, MB, and Martinez, LB. (2012). A comparative analysis of the informational efficiency of the fixed income market in seven European countries. Economics Letters, 116 (3), 426-428.
Barrios, S., Iversen, P., Lewyowska, M., and Setze, R. (2009). Determinants of intra-euro área government bond spreads during the financial crisis. European Economy, 388, 1-26.
Beber, A., Bryt, M., and Kavajecz, K. (2009). Flight-to-quality or flight-to-liquidity? Evidence from the euro-area bond market. Review of Financial Studies, 22, 925-957.
Bernoth, K., von Hagen J., and Schuknecht, L. (2004). Sovereign risk premiums in the European government bond market. European Central Bank, Working Paper 369, 1-39.
Bernoth, K., and Erdogan, B. (2012). Sovereign bond yield spreads: A time varying coefficient approach, Journal of International Money and Finance, 31, 639-656.
Bianchi (2016). Sovereign risk premia and the international balance sheet: Lessons from the European Crisis. Open Economic Review, 27, 471-493.
Blot, C., Ducoudré, B., and Timbeau, X. (2016). Sovereign debt spread and default in a model with self-fulfilling prophecies and asymmetric information. Journal of Macroeconomics, 47, 281-299.
Codogno, L., Favero, C., and Missale, A. (2003). Yield spreads on EMU government bonds. Economic Policy, October, 503-532.
Costantini, M., Fragetta, M., and Giovanni, M. (2014). Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective. European Economic Review, 70, 337-349.
Dailami, M., Masson, P.R., and Padou, J.J. (2005). Global monetary conditions versus country- specific factors in the determination of emerging market debt spreads. The World Bank Policy Research, 3626, 1-31.
Eichengreen, B., and Mody, A. (1998). What explains changing spreads on emerging markets debt: Fundamentals or market sentiment? NBER Working Paper, 6408, 1-45.
Fatih, Ö., Erdal, Ö., and Gülbin, Ş. (2009). Emerging market sovereign spreads global financial conditions y US macroeconomic news. Economic Modelling, 26, 526-531.
Geyer, A., Kossmeier, S., and Pichler, S. (2004). Measuring systematic risk in EMU spreads, Review of Finance, 8 (2), 171-197.
Gómez-Puig, M. (2009). Systemic and idiosyncratic risk in EU-15 Sovereign yield spreads after seven years of Monetary Union. European Financial Management, 15, 971-1000.
Grammatikos, T., and Vermeulen, R. (2011). Transmission of the financial sovereign debt crises to the EMU: Stock Prices, CDS spreads and Exchange Rates. Journal of International Money and Finance, 31 (3), 517-533.
Grandes, M. (2007). The determinants of sovereign bond spreads: Theory and facts from Latin America, Cuadernos de Economía, 44, 151-181.
JPMorgan (2001). Government Bond Index Technical Document. Kamin, S.B., and von Kleist, K. (1999). The evolution and determinants of emerging market credit spreads in the 1990s. BIS Working Papers, 68, 1-34.
Kaminsky, G., and Schmukler, S. (2002). Emerging market instability: Do sovereign ratings affect country risk and stock returns? The World Bank Economic Review, 16 (2), 171-195.
Klepsch, C., and Wollmershauser, T. (2011). Yield spreads on EMU government bonds. How the financial crisis has helped investors to rediscover risk. Intereconomics, 46 (3), 169-176.
Kohonen, A. (2014). Transmission of government default risk in the Eurozone. Journal of International Money and Finance, 47, 71-85.
Lemmen, J.J., and Goodhart, C.A. (1999). Credit risks y European government bond markets: A panel data econometric analysis, Eastern Economic Journal, 25 (1), 77-105.
Maltritz, D. (2012). Determinants of sovereign yield spreads in the Eurozone: A Bayesian approach, Journal of International Money and Finance, 31, 657-672.
Manganelli, S., and Wolswijk, G. (2009). What drives spreads in the Euro area government bond market? Economic Policy, April, 193-240.
Min, H. (1998). Determinants of emerging market bond spread. Do economic fundamentals matter?, Policy Research Working Paper, 1899, 1-31.
Pagano, M. (2004). The European bond markets under EMU, Oxford Review of Economic Policy, 20 (4), 531-554.
Reinhart, C., Kaminsky, G, and Lizondo, S. (1998). Leading indicators of currency crises, International Monetary Fund, 45 (1), 1-48.
Rowland, P., and Torres, J.L. (2004). Determinants of spread and creditworthiness for emerging market sovereign debt: A panel data study, Banco de la República, Borradores de Economía, 295, 1-55.
Schucknecht, L., von Hagen, J., and Wolswijk, G. (2009). Government risk premiums in the bond market: EMU and Canada. European Journal of Political Economy, 25, 371-384.
Schuknecht, L., von Hagen, J., and Wolswijk, G. (2010). Government bond risk premiums in the EU revisited: The impact of the financial crisis. European Central Bank. Working paper, 1152, 1-27.
Sgherri S., Zoli E. (2009). Euro area sovereign risk during the crisis, IMF Working Paper /09/222, 1-22.
Terceño-Gómez, A., Martinez, L.B., Sorrosal-Forradellas, M., and Guercio, M.B. (2015). Sovereign bond spreads and economic variables of European Countries under the analysis of self-organizing maps, Scientific Methods for the Treatment of Uncertainty in Social Sciences 377 of the series Advances in Intelligent Systems and Computing, Nº 377, 347-358.
Vayanos D. (2004). Flight to quality, flight to liquidity, and the pricing of risk. NBER- Working Papers 10327, 1-54.
Von Hagen, J, Schuknecht, L, and Wolswijk, G. (2011). Government bond risk premiums in the EU revisited: The impact of the financial crisis. European Journal of Political Economy, 24, 36-43.
How to Cite
Martinez, L. B., Terceño, A., & Teruel, M. (2016). Sovereign Bond Spreads determinants during the last financial crisis: The European case. Cuadernos De Administración, 29(53), 77–100. https://doi.org/10.11144/Javeriana.cao29-53.dssd
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