Abstract
AbstractThis paper conducts an empirical examination of the determinants of the 10‐, 5‐ and 1‐year Portuguese government bond yields by performing a time series econometric analysis for the period between the first quarter of 2000 and the last quarter of 2016. The literature suggests that the evolution of government bond yields depends on three main risk drivers, namely credit risk, global risk aversion and liquidity risk. We estimate three equations for the 10‐, 5‐ and 1‐year Portuguese government bond yields, including eight independent variables (macroeconomic performance, fiscal conditions, foreign borrowing, the inflation rate, labour productivity, the demographic situation, global risk aversion and liquidity risk) to take into account all three risk drivers referred to in the literature. Our results show that there are no significant differences in the determinants of the Portuguese government bond yields among the different maturities, either in the long term or in the short term. Our results also confirm that all three of the risk drivers have exerted a strong influence on the evolution of the Portuguese government bond yields. Liquidity risk, foreign borrowing and the inflation rate are the main triggers of the rise in the Portuguese government bond yields, which does not counterweigh the beneficial effects played by the fiscal conditions, labour productivity and demographic situation.
Highlights
It is widely acknowledged that understanding the determinants that are responsible for the evolution of government bond yields over time assumes huge importance, for policy makers and their policies and budgetary decisions and for investors and their potential returns and/or losses from their investment portfolios that include government bonds.from a theoretical point of view, the evolution of government bond yields typically depends on the three main risk drivers, namely credit risk, global risk aversion and liquidity risk (Manganelli and Wolswijk, 2009; Arghyrou and Kontonikas, 2012; Afonso et al, 2015)
The inflation rate and foreign borrowing are the main triggers of the rise in the Portuguese government bond yields, which does not counterweigh the beneficial effects played by the fiscal conditions, demographic situation and labour productivity
We build and estimate three equations for the ten, five- and oneyear Portuguese government bond yields, respectively, using eight independent variables to take into account all three risk drivers referred to in the literature
Summary
From a theoretical point of view, the evolution of government bond yields typically depends on the three main risk drivers, namely credit risk, global risk aversion and liquidity risk (Manganelli and Wolswijk, 2009; Arghyrou and Kontonikas, 2012; Afonso et al, 2015). From an empirical point of view, the determinants of government bond yields are assessed by several econometric studies (Ardagna et al, 2007; Haugh et al, 2009; Laubach, 2009; Kumar and Baldacci, 2010; Ichiue and Shimizu, 2012; Dell’Erba and Sola, 2013; Pham, 2014; Poghosyan, 2014; Hsing, 2015)
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