Sylvester Eijffinger, Mary Pieterse-Bloem
Euro area government bond spreads have changed significantly in the past 25 years. This column empirically analyses the factors driving euro area government bond spreads, using a combination of macro fundamental-based and market risk-based models. It finds that there is a growing disconnect with macro fundamentals, and a growing importance of market risk-based factors in explaining these spreads. Most importantly, it shows that the ECB has waged a mounting influence on euro area government bond spreads, particularly after 2012/2013. This coincides with the shift in the ECB’s monetary policy, from conventional to increasingly unconventional.