The Importance of Being Earnest: Macroeconomic Determinants of Sovereign Bond Yield Spreads in the Eurozone

Abstract

This paper provides an empirical analysis of the macroeconomic determinants of sovereign bond yield spreads in the eurozone from 2000 until August 2012, when the Outright Monetary Transactions programme was launched. Results show that the relationship between sovereign risk and macroeconomic fundamentals is affected by a strong country sentiment effect. The impact of country sentiment on sovereign risk is larger for those countries experiencing high spreads. Quantile regressions results suggest that policy recommendations should be adapted to each country's market perception, due to the differential effect that variations in fundamentals have on each economy.

Este artículo realiza un análisis empírico de los determinantes macroeconómicos de los diferenciales de interés de la deuda pública en la eurozona entre 2000 y agosto de 2012, cuando se puso en marcha el programa de Outright Monetary Transactions. Los resultados muestran que existen efectos de país que afectan a la relación entre diferenciales y fundamentales macroeconómicos. El impacto de los efectos de país es mayor para aquellos países que afrontan altos diferenciales.