TITLE:
A Research on Eurozone Bond Market and Determinants of Sovereign Bond Yields
AUTHORS:
Navjeet Gill
KEYWORDS:
Bond Markets, Financial Crisis, Interest Rates, Eurozone, Sovereign Spreads
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.7 No.2,
June
25,
2018
ABSTRACT: This empirical research uses an OLS regression
framework to examine the effect of the overall debt crisis on European
sovereign bonds by conducting an overview of the bond market. It identifies the
determinants which affect the generation of the indebtedness of sovereign bonds
and play a major role in the determination of their solvency and hence, the
spreads. These results reveal that Interest Rate, Inflation, Debt to GDP,
Deficit to GDP, Gross Domestic Product rate of growth, and VSTOXX index are the
most significant determinants of the sovereign bond spreads in the 6 sample countries, i.e. France, Germany, United
Kingdom, Greece, Italy and Spain. To summarize, the main factors which affected
bond spreads before the crisis, were not the country-specific fundamentals
but rather the convergence of bond yields in the euro-zone countries due to and
following the launch of the monetary union but during the crisis, increased
risk aversion and lack of lender of last resort, shifted the focus to country
specific factors and the bond spreads began to diverge according to the determinants
highlighted in this study.