Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153586
Authors: 
Schuknecht, Ludger
von Hagen, Jürgen
Wolswijk, Guido
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1152
Abstract: 
This note looks at US$ and DM/Euro denominated government bond spreads relative to US and German benchmark bonds before and after the start of the current financial crisis. The study finds, first, that bond yield spreads before and during the crisis can largely be explained on the basis of economic principles. Second, markets penalise fiscal imbalances much more strongly after the Lehman default in September 2008 than before. There is also a significant increase in the spread on non-benchmark bonds due to higher general risk aversion, and German bonds obtained a safe-haven investment status similar to that of the US which they did not have before the crisis. These findings underpin the need for achieving sound fiscal positions in good times and complying with the Stability and Growth Pact.
Subjects: 
crisis
Fiscal Policy
government debt
Interest Rates
risk aversion
safe haven
JEL: 
E43
E62
H63
H74
Document Type: 
Working Paper

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