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Title:On creditor seniority and sovereign bond prices in Europe PDF Logo
Authors:Steinkamp, Sven
Westermann, Frank
Issue Date:2012
Series/Report no.:Working Paper, Institute of Empirical Economic Research, University of Osnabrück 92
Abstract:The recent increase of interest rate spreads in Europe and their apparent detachment from underlying fundamental variables has generated a debate on multiple equilibria in the sovereign bond market (see Grauwe and Ji (2012)). We critically evaluate this hypothesis, by pointing towards an alternative explanation: the increasing share of senior lenders (IMF, ECB, EFSF, etc.) in the total outstanding government debt of countries in crisis. We illustrate the close relationship between senior tranche lending - including Target2 balances - and recent developments in the sovereign bond market, both graphically and in a formal regression analysis.
Subjects:Government bond spreads
Eurozone
senior tranche lending
multiple equilibria
sovereign debt crisis
Target
JEL:F34
G12
H81
Document Type:Working Paper
Appears in Collections:Working Papers, Institut für Empirische Wirtschaftsforschung, Universität Osnabrück

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