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Determinants of the sovereign bond yield spreads in the Euro Area in the context of the economic and financial crisis
E43 - Determination of Interest Rates; Term Structure of Interest Rates
G12 - Asset Pricing
G15 - International Financial Markets
This paper aims to identify the determinants behind the different evolution of sovereign bond yields in euro area countries for the period of the current crisis. Up to the time of the collapse of Lehman Brothers, global risk premium was the main driver of spreads. Afterwards, the relevance of idiosyncratic factors increased. Although liquidity premiums played a larger role in the months following September 2008, as the financial crisis spilled over into a strongly deteriorating macroeconomic environment, the importance of country credit risk factors increased. In the first five months of 2010, heterogeneity insovereign credit risk premiums and a further increase in global risk aversion were, to a large extent, the determining factors behind the evolution of spreads.