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Volume 69, Issue 2

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News Releases, Credit Rating Announcements, and Anti-Crisis Measures as Determinants of Sovereign Bond Spreads in the Peripheral Euro-Area Countries

Grabowski, Wojciech; Stawasz-Grabowska, Ewa

Year: 2019   Volume: 69   Issue: 2   Pages: 149-173

Abstract: This paper aims to contribute to the understanding of the determinants of the sovereign bond yields of the peripheral euro-area countries in recent years. We consider news releases, credit rating announcements, and anti-crisis measures undertaken by the ECB, for the EU/euro area as a whole as well as at the level of individual countries, as potential determinants. Our study is based on the daily sovereign bond spreads (with regard to German bunds) of Greece, Ireland, Italy, Portugal, and Spain in the years 2010-2016. We use the VARX-GARCH-BEKK model. Our results suggest that the spreads were most strongly influenced by the ECB’s measures and bailout programs, while the initiatives undertaken at the EU/euro area level played a less significant role. Rating changes proved to be significant, but some discrepancies with the results of previous studies occurred. Different sets of news variables were received for each country. Nonetheless, similarities were also identified.

JEL classification: C58, F36, G12, G15

Keywords: sovereign bond yields, euro area crisis, VARX-GARCH-BEKK model

RePEc: https://ideas.repec.org/a/fau/fauart/v69y2019i2p149-173.html

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