The effects of macroeconomic, fiscal and monetary policy announcements on sovereign bond spreads

António Afonso, João Tovar Jalles, Mina Kazemi

Research output: Contribution to journalArticlepeer-review

24 Citations (Scopus)

Abstract

We assess the impact of announcements corresponding to different fiscal and monetary policy measures on 10-year sovereign bond yield spreads (relative to Germany) of 10 EMU countries during the period 01:1999-07:2016. Implementing country-fixed effects OLS regressions, we find that the European Commission's (EC) releases of the excessive deficit procedure significantly affect yield spreads. The EC releases of higher debt and better budget balance forecasts contribute to the rise and the decline of spreads, respectively. Moreover, we find that the announcements of the ECB's key interest rates together with the longer-term refinancing operations (LTROs) and the first covered bond purchase programme (CBPP1) negatively affect sovereign yield spreads in our sample of EMU countries. There was also some capital market mispricing of the sovereign bond risk in the Euro area before the Global Financial Crisis, notably regarding government debt forecasts.

Original languageEnglish
Article number105924
JournalInternational Review Of Law And Economics
Volume63
DOIs
Publication statusPublished - Sept 2020

Keywords

  • Event analysis
  • Fiscal policy
  • Monetary policy
  • Panel data
  • Sovereign yields

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