حق بیمه بازبینی شده ریسک اوراق قرضه دولتی در اتحادیه اروپا : تاثیر بحران مالی

This article 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 during the crisis can largely be explained on the basis of the same variables as before the crisis. 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.

The potential effect of credit risk on government bond yields has received heightened attention when yield spreads started rising significantly as the global financial crisis intensified in September 2008.1 This article addresses four important questions related to this experience: first, are market valuations of government debt during a crisis still in line with “economic rationality”? Second, do the larger spreads observed during the crisis result from larger fiscal deficits and debt or do they also reflect a regime shift in the market pricing of government credit risk? Third, to what extent are the larger spreads during the crisis a result of a general increase in risk aversion? Fourth, what are the magnitudes of market penalisation of fiscal imbalances in crisis compared to more “normal” times? The first question is motivated by the view, common in the public debate, that the financial crisis revealed that financial markets do not work according to “economic rationality”. This view would lose some of its justification if one could show that, even in times of crises, markets consistently price government bonds on the basis of the same set of macroeconomic and financial variables as before.2 The second question is motivated by the experience that, prior to the debt crisis of New York City in 1975, municipal bond markets in the US did not pay much attention to public debts and deficits. After that, however, at least for some time, these markets charged risk premiums on bonds issued by cities and states with large public debts.3 The third and the fourth questions focus on the role of fiscal performance versus investors' preferences in the pricing of sovereign risk. To answer these questions, we start from the results of our recent empirical study of government bond yield spreads (Schuknecht et al., 2009). We extend the data base used in that study for the European central governments until May 2009 and distinguish between two phases of the current crisis; a period of market turmoil starting in August 2007 and lasting until August 2008, and a period of the acute crisis starting with the collapse of Lehman Brothers in September 2008. While caution in drawing conclusions is needed given the limited number of observations in the crisis period, the results of our study suggest, first, that bond yield spreads in the crisis up to May 2009 can still largely be explained on the basis of the same set of variables as before the start of the crisis. Second, markets penalise fiscal imbalances much more strongly than before only after the Lehman default in September 2008. This shift in behaviour is responsible for much of the spread increase for EU country government bonds relative to German or US treasury benchmark bonds. Coefficients for deficit differentials are three to four times higher during the post-Lehman crisis period than earlier and for debt differentials they are seven to eight times higher. In addition to fiscal deficits and debt, however, there is also a significant increase in the spread on non-benchmark bonds due to general risk aversion. After the Lehman default, German government bonds, the benchmark in the euro-denominated bond market, assumed a safe-haven investment status similar to US government bonds, which they did not have before. The first policy implication of the above findings is that market valuation of sovereign risk remains a valid mechanism to discipline fiscal policy in times of financial crisis, reflecting underlying credit risk concerns. The second implication is that, to avoid high borrowing costs, fiscal policies in “good” times should be sounder, creating leeway for crisis times.4 For euro area countries in particular, this suggests that achieving budgetary positions close to balance or in surplus, in line with the Stability and Growth Pact, is a necessary (though perhaps not sufficient) condition to safeguard against the high costs of public debt.

This article looks at government bond yield spreads in the US$- and euro-denominated bond markets before and after the start of the financial crisis that began with the collapse of Lehman Brothers in September 2008. It asks whether market valuations of government deficits and debts during the crisis are rational in the sense of being based on the same variables as before the crisis, what role is played by general risk aversion versus fiscal criteria before and since the start of the crisis, and how the magnitude of market penalisation of fiscal risks has changed. While caution is appropriate given the limited number of observations in the crisis period, the outcomes of our study, which uses data until May 2009, suggest, first, that bond yield spreads can still largely be explained on the basis of economic principles during the crisis, i.e., a limited set of macroeconomic and financial variables consistently explains most of their behaviour over time. Second, markets penalise fiscal imbalances much more strongly since the Lehman default in September 2008. This shift in behaviour is responsible for much of the spread increase for EU country government bonds as compared to German or US treasury benchmarks. Elasticities for deficit differentials are three to four times larger during the post-Lehman crisis period than earlier, and those for debt differentials seven to eight times larger. In addition to the effects of fiscal deficits and debt, however, there is also a significant increase in the spread on non-benchmark bonds due to general risk aversion. After the Lehman default, German government bonds assumed a safe-haven investment status similar to US government bonds which they did not have before. US municipal bond markets began to discriminate much more strongly between state governments with weak and strong fiscal performance after the fiscal crisis of New York City in 1975, when the US federal government denied a bail-out of the city. If, in a similar way, the change in the pricing behaviour in European bond markets is persistent after the crisis, the pressures for fiscal discipline coming from financial markets will be much stronger in the future than they were before the crisis.14