Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2015:30:
Cross-Border Asset Holdings and Comovements in Sovereign Bond Markets

Hossein Asgharian (), Lu Liu () and Marcus Larsson ()

Abstract: We analyze the importance of different types of asset holdings for the interdependence of the yield curves in the EMU using a spatial VAR model. We find that the cross-border holdings of long-term debt and bank lending are important for the interdependence. Our analysis of cross-sectional dispersion in sovereign-CDS-premium term structure shows that the differential in sovereign creditworthiness in the EMU is a main driver of the yield-curve divergence after 2008. The degree to which EMU countries’ yield-curve slopes depend on the US slope decreases in the recent US recession, reflecting expectations during this period about future divergence of the US and EMU economies.

Keywords: yield-curve factors; cross-border asset holding; spatial dependence; EMU; sovereign credit default swap; (follow links to similar papers)

JEL-Codes: C31; E43; G15; (follow links to similar papers)

50 pages, October 6, 2015

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