This paper explores the determinants of 10-year sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro’s break up and contagion from Greece were fundamental drivers of sovereign risk premia in peripheral countries.

Expectations and systemic risk in EMU government bond spreads / Canofari, Paolo; Marini, Giancarlo; Piersanti, Giovanni. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - 15:4(2015), pp. 711-724. [10.1080/14697688.2014.968606]

Expectations and systemic risk in EMU government bond spreads

Canofari Paolo
Membro del Collaboration Group
;
MARINI, GIANCARLO
Membro del Collaboration Group
;
2015

Abstract

This paper explores the determinants of 10-year sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro’s break up and contagion from Greece were fundamental drivers of sovereign risk premia in peripheral countries.
Contagion; Euro break up risk; Financial crisis; Monetary unions; Multiple equilibria; Self-fulfilling expectations; Shadow exchange rate; Sovereign default risk; Speculative attacks; Spreads; Finance; Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous)
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/181619
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