Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147024
Authors: 
Randl, Otto
Zechner, Josef
Year of Publication: 
2016
Series/Report no.: 
CFS Working Paper Series 545
Abstract: 
This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria's central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.
Document Type: 
Working Paper

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