What drives European sovereign bond spreads? A comparative benchmark analysis

LISANA B. MARTINEZ; ANTONIO TERCEÑO; MERCEDES TERUEL

Analisis Financiero

Instituto Español de Analistas Financieros

Lugar: Madrid; Año: 2016

The aim of this work is based to identify the main determinants of European sovereign bonds spread considering as benchmarks aGerman Sovereign bond index and another one ofUnited States.The period under scrutiny is 2004 to 2011 and considers 17 European countries, some of thembelonging to the EuropeanMonetary Union. We apply a panel data framework with fixed effects. The models are representative and allow us to identify the main variables that affect sovereign bonds spreads.We find that the contagion effect is stronger in theEuropean financialmarkets when the US benchmark is considered. Furthermore, contagion effect is deeper for euro zone countries.