Sovereign Risk Premiums in the European Government Bond Market

Bernoth, Kerstin and Hagen, Jürgen von and Schuknecht, Ludger (May 2006): Sovereign Risk Premiums in the European Government Bond Market. SFB/TR 15 Discussion Paper No. 151

Abstract

This paper provides a study of bond yield differentials among EU government bonds issued between 1993 and 2005 on the basis of a unique dataset of issue spreads in the US and DM (Euro) bond market. 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 debt service payments as the key measure of indebtedness and eliminated liquidity premiums in the euro area.

• Item Type: Paper (Discussion Paper)
• Keywords: asset pricing, determination of interest rates, fiscal policy, government debt
• Collections: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A5 - Unvollständige Vertragsbeziehungen und die Gestaltung von Residualrechten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G12, E43, E62, H63
• Language: English