How do financial institutions forecast sovereign spreads?

Peter Claeys, Jacopo Cimadomo

Research output: Working paper

Abstract

This paper assesses how financial market participants form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the UK between January 1993 and December 2011, we test whether respondents consider the expected evolution of the fiscal balance—and other economic fundamentals—as significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. Overall, the findings suggest that credible fiscal plans affect expectations of market experts, reducing the pressure on sovereign bond market
Original languageEnglish
PublisherEuropean Central Bank
Number of pages42
ISBN (Print)978-92-899-1158-0
Publication statusPublished - 2014

Publication series

NameECB Working Paper Series
PublisherECB
No.1750
ISSN (Electronic)1725-2806

Fingerprint

Dive into the research topics of 'How do financial institutions forecast sovereign spreads?'. Together they form a unique fingerprint.

Cite this