RT Journal Article
SR Electronic
T1 The Dynamics of Sovereign Yield Differentials in
the EMU: New Evidence and Perspectives
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 67
OP 83
DO 10.3905/jfi.2011.21.1.067
VO 21
IS 1
A1 Riccardo Lo Conte
YR 2011
UL https://pm-research.com/content/21/1/67.abstract
AB The author investigates yield differentials from a different perspective. To account for the still non-negligible differences in long-term government bond yields of EMU members relative to Germany, the literature has placed much attention on the relative importance of liquidity and credit risk factors. In this article, the author argues that the main driver of spreads is the U.S. long-term rate. Results qualify earlier evidence and document an additional and independent role for the international risk factor. This article also shows that working on spreads relative to the German rate is a frustrating exercise while the use of the U.S. rate as external reference allows for sharper results.TOPICS: Fixed-income portfolio management, big data/machine learning, developed markets [Europe]