Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237700 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2561
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We decompose euro area sovereign bond yields into five distinct components: i) expected future short-term risk-free rates and a term premium, ii) default risk premium, iii) redenomination risk premium, iv) liquidity risk premium, and a v) segmentation (convenience) premium. Iden- tification is achieved by considering sovereign bond yields jointly with other rates, including sovereign credit default swap spreads with and without redenomination as a credit event fea- ture. We apply our framework to study the impact of European Central Bank (ECB) monetary policy and European Union (E.U.) fiscal policy announcements during the Covid-19 pandemic recession. We find that both monetary and fiscal policy announcements had a pronounced ef- fect on yields, mostly through default, redenomination, and segmentation premia. While the ECB's unconventional monetary policy announcements benefited some (vulnerable) countries more than others, owing to unprecedented exibility in implementing bond purchases, the E.U.'s fiscal policy announcements lowered yields more uniformly.
Subjects: 
Sovereign bond yields
ECB
Kalman lter
event study
JEL: 
C22
G11
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4747-3
Document Type: 
Working Paper

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