Is there a Long-Term Relationship among European Sovereign Bond Yields?

The integration of financial markets has been a recurring theme in academic and financial research. The majority of the literature has focused on equity markets. Literature on the integration of international bond markets is not as common, specifically regarding that of European bonds since the beginning of the common currency area in 1999.This paper estimates a fixed effects pooled model and then proceeds to undertake panel unit root and cointegration tests to determine the degree of co-movement of European sovereign bond yields. The reported estimates suggest that yields move together over time, thus the benefits of diversification in European government bond portfolios may be limited. The results also have important implications for monetary policy. Given that economic shocks (e.g. inflationary shocks) are transmitted quickly from country to country, then it will complicate the task of monetary policy when it comes to pursuing an independent policy with respect to domestic monetary conditions in the presence of asymmetric economic shocks.

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Long-Term Returns in Distressed Sovereign Bond Markets: How Did Investors Fare?

SSRN Electronic Journal ◽

10.2139/ssrn.3427675 ◽

2019 ◽

Author(s):

Jochen Andritzky ◽

Julian Schumacher

Keyword(s):

Bond Markets ◽

Sovereign Bond ◽

Sovereign Bond Markets

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Which News Moves the Euro Area Bond Market?

German Economic Review ◽

10.1111/j.1468-0475.2008.00439.x ◽

2009 ◽

Vol 10 (1) ◽

pp. 1-31 ◽

Cited By ~ 45

Author(s):

Magnus Andersson ◽

Szabolcs Sebestyén ◽

Lars Jul Overby

Keyword(s):

Monetary Policy ◽

Euro Area ◽

Bond Market ◽

Bond Markets ◽

Market Responses ◽

Macroeconomic Announcements ◽

Bond Futures

AbstractThis paper explores a long dataset (1999-2005) of intraday prices on German long-term bond futures and examines market responses to major macroeconomic announcements and ECB monetary policy releases. German bond markets tend to react more strongly to the surprise component in US macro releases compared with aggregated and national euro area and UK releases, and the strength of those reactions to US releases has increased over the period considered. We also document that the numbers of German unemployed workers consistently have been known to investors before official releases.

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Long-Term Returns in Distressed Sovereign Bond Markets

IMF Working Papers ◽

10.5089/9781498317375.001 ◽

2019 ◽

Vol 19 (138) ◽

pp. 1

Author(s):

Jochen Andritzky ◽

Julian Schumacher

Keyword(s):

Sovereign Debt ◽

Investment Strategy ◽

Excess Return ◽

Bond Markets ◽

Debt Restructuring ◽

Sovereign Bond ◽

Sovereign Bonds ◽

Before And After ◽

Sovereign Bond Markets

Sovereign debt restructurings are perceived as inflicting large losses to bondholders. However, many bonds feature high coupons and often exhibit strong post-crisis recoveries. To account for these aspects, we analyze the long-term returns of sovereign bonds during 32 crises since 1998, taking into account losses from bond exchanges as well as profits before and after such events. We show that the average excess return over risk-free rates in crises with debt restructuring is not significantly lower than the return on bonds in crises without restructuring. Returns differ considerably depending on the investment strategy: Investors who sell during crises fare much worse than buy-and-hold investors or investors entering the market upon signs of distress

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SNB move will accentuate bond-equity divergence

Emerald Expert Briefings ◽

10.1108/oxan-db197067 ◽

2015 ◽

Keyword(s):

Euro Area ◽

Yield Curve ◽

Equity Markets ◽

Bond Markets ◽

Quantitative Easing ◽

Bond Yields ◽

Content Type ◽

Sovereign Bond ◽

Advanced Economies ◽

The Us

Significance The move mainly aims to pre-empt the widely anticipated launch of a sovereign quantitative easing (QE) programme by the ECB on January 22. However, it will accentuate divergences between bond and equity markets. Sovereign bond yields for most advanced economies are falling to new lows and are increasingly negative at the shorter end of the yield curve, because of deflation fears and lacklustre growth outlooks. Yet equity markets are hovering near record highs, buoyed by the US recovery and expectations of further monetary stimulus in the euro-area. Impacts Bond markets will be driven by deflation fears, while equity markets, especially US stocks, will be buoyed by Goldilocks-type conditions. Market expectations that the ECB will launch a sovereign QE programme will make bond yields fall further. Bond yields will be suppressed by investor scepticism about the ECB's ability to reflate the euro-area economy.

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Long-term Bond Yields, Monetary Policy and the Expectations Hypothesis of the Term Structure of Interest Rates

Monetary Policy and Interest Rates ◽

10.1007/978-1-349-26891-7_4 ◽

1998 ◽

pp. 67-79

Author(s):

Peter Kugler

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Term Structure ◽

Bond Yields ◽

Expectations Hypothesis

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Bond Yields, Sovereign Risk and Maturity Structure

Risks ◽

10.3390/risks6040109 ◽

2018 ◽

Vol 6 (4) ◽

pp. 109

Author(s):

Marcos González-Fernández ◽

Carmen González-Velasco

Keyword(s):

Sovereign Debt ◽

Inverse Relationship ◽

Economic And Monetary Union ◽

Sovereign Risk ◽

Bond Yields ◽

Sovereign Bond ◽

Time Variance ◽

Maturity Structure ◽

The Relationship

The aim of this paper is to analyze the relation between maturity structure, sovereign bond yields and sovereign risk in the Economic and Monetary Union for the period of 1990–2013. The results confirm the existence of an inverse relationship between sovereign bond yields, sovereign risk and the maturity structure of sovereign debt, regardless of the proxy that is used to measure sovereign risk and the time variance of the variables employed. The results indicate that risk shortens the maturity structure of sovereign debt because it reduces the stock of long-term debt. The relationship between maturity structure and sovereign bond yields differs depending on the risk of the countries analyzed (non-monotonic relationship) and the differences between peripheral and core countries are greater for higher levels of the yields. If we control for the indebtedness level of these countries, the results show that the relationship between the sovereign bond yields and maturity strengthens as the debt level increases.

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