Sovereign Risk Premiums in the European Government Bond Market

Aufsätze referiert extern - Web of Science

Kerstin Bernoth, Jürgen von Hagen, Ludger Schuknecht

In: Journal of International Money and Finance 31 (2012), 5, S. 975-995

Abstract

This paper provides a study of bond yield differentials among EU government bonds on the basis of a unique data set of issue spreads in the US and DM (Euro) bond market between 1993 and 2009. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premiums which increase with fiscal imbalances and depend negatively on the issuer's relative bond market size. The start of the European Monetary Union has shifted market attention to deficit and debt service payments as key measures of fiscal soundness and eliminated liquidity premiums in the euro area. With the financial crisis, the cost of loose fiscal policy has increased considerably.

Kerstin Bernoth

Stellvertretende Abteilungsleiterin in der Abteilung Makroökonomie



JEL-Classification: G12;E43;E62;H63
Keywords: Sovereign bonds, Fiscal policy, EMU, Financial crisis
DOI:
http://dx.doi.org/10.1016/j.jimonfin.2011.12.006