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What drives spreads in the euro area government bond market?
[‘What “hides” behind sovereign debt ratings?’]

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Listed:
  • Simone Manganelli
  • Guido Wolswijk

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.— Simone Manganelli and Guido Wolswijk

Suggested Citation

  • Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market? [‘What “hides” behind sovereign debt ratings?’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(58), pages 191-240.
    • Handle: RePEc:oup:ecpoli:v:24:y:2009:i:58:p:191-240.
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    File URL: http://hdl.handle.net/10.1111/j.1468-0327.2009.00220.x
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