The determinants of Eurozone sovereign spreads: a long-run perspective

Spreads on sovereign bonds in the euro-area have gone through several oscillations and different market behaviours in the last two decades, being a source of apprehension for the solvency of the countries with weaker fiscal fundamentals and for the monetary policy transmission mechanisms inside the eurozone. Our contribution is to develop a panel analysis of a selection of euro-area countries to assess the fiscal and financial determinants of long-term sovereign bond yield spreads. We investigate the different patterns that characterized the spreads across the last twenty years, from the convergence period of 2002-2007, through the surge of the global financial crisis and the European sovereign debts crisis up to the period dominated by the announcement of OMTs and the implementation of the Quantitative Easing, ending with the monetary response to the COVID-19 pandemics. The aim is also to offer a connection perspective with the existing literature.