Author(s)

Navjeet Gill

Nova School of Business and Economics, Lisbon, Portugal.

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.

Bond Markets, Financial Crisis, Interest Rates, Eurozone, Sovereign Spreads

Gill, N. (2018) A Research on Eurozone Bond Market and Determinants of Sovereign Bond Yields. Journal of Financial Risk Management, 7, 174-190. doi: 10.4236/jfrm.2018.72012.