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The determinants of euro area sovereign bond yield spreads-An empirical analysis

Monokroussos, Platon, (2017), “The determinants of euro area sovereign bond yield spreads- An empirical analysis”, Eurobank, July

In this paper we present the results of an empirical study on the determinants of the sovereign bond yield spreads in the euro area before and after the outbreak of the global financial crisis. As an additional step, we estimate a valuation model for the 10-year Greek government bond yield differentials, with the aim to measure the degree of any over- or under-valuation of Greek sovereign debt prices with respect to the macroeconomic- and market-related fundamentals. Although the disaggregation of sovereign credit spreads into their constituent components is a rather difficult exercise, we follow the relevant empirical literature and focus on three distinct classes of potential determinants; namely: credit risk; liquidity risk;
and global risk aversion.

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