Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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

Hossein Asgharian (), Lu Liu () and Marcus Larsson ()
Additional contact information
Hossein Asgharian: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Lu Liu: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Marcus Larsson: Handelsbanken, Stockholm

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

JEL-codes: C31; E43; G15

50 pages, October 6, 2015

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