Sovereign Risk Premia in the European Government Bond Market

39 Pages Posted: 2 Dec 2004

See all articles by Kerstin Bernoth

Kerstin Bernoth

German Institute for Economic Research (DIW Berlin)

Jürgen von Hagen

University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)

Ludger Schuknecht

European Central Bank (ECB)

Date Written: June 2004

Abstract

This paper provides a study of bond yield differentials among EU eurobonds issued between 1991 and 2002. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premia which increase with the debt, deficit and debt-service ratio and depend positively on the issuer's relative bond market size. Global investors' attitude towards credit risk, measured as the yield spread between low grade US corporate bonds and government bonds, also affects bond yield spreads between EU countries and Germany/USA. The start of the European Monetary Union had significant effects on the bond pricing of the member states.

Keywords: asset pricing, determination of interest rates, fiscal policy, government debt

JEL Classification: G12, E43, E62, H63

Suggested Citation

Bernoth, Kerstin and von Hagen, Jürgen and Schuknecht, Ludger, Sovereign Risk Premia in the European Government Bond Market (June 2004). Available at SSRN: https://ssrn.com/abstract=533129

Kerstin Bernoth (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Jürgen Von Hagen

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ludger Schuknecht

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,953
Abstract Views
8,434
rank
9,580
PlumX Metrics