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Decomposing euro area sovereign spreads: credit, liquidity and convenience

Author

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  • Marcello Pericoli

    (Bank of Italy)

  • Marco Taboga

    (Bank of Italy)

Abstract

We conduct an empirical analysis of sovereign bond spreads for a selected number of euro area countries. We analyze several methodologies to measure and to assess the relative importance of three components of sovereign spreads: credit premia, liquidity premia and convenience yields. We find that, except for Germany, credit premia explain the bulk of the level and variability in sovereign spreads, while liquidity premia and convenience yields seem to play a limited role, although they are in several cases statistically significant and they can become economically relevant during short episodes of illiquidity.

Suggested Citation

  • Marcello Pericoli & Marco Taboga, 2015. "Decomposing euro area sovereign spreads: credit, liquidity and convenience," Temi di discussione (Economic working papers) 1021, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1021_15
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    References listed on IDEAS

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    Cited by:

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    2. Ludovit Odor & Pavol Povala, 2016. "Risk Premiums in Slovak Government Bonds," Discussion Papers Discussion Paper No. 3/20, Council for Budget Responsibility.
    3. Margherita Bottero & Stefano schiaffi, 2022. "Firm liquidity and the transmission of monetary policy," Temi di discussione (Economic working papers) 1378, Bank of Italy, Economic Research and International Relations Area.
    4. Giuseppe Ferrero & Michele Loberto & Marcello Miccoli, 2017. "The collateral channel of unconventional monetary policy," Temi di discussione (Economic working papers) 1119, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    sovereign spreads; liquidity premia; convenience yields;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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