Sovereign bond market spillovers from crisis-time developments in Greece

Abstract

The systemic importance of a country is a crucial component in the assessment of requests for official-sector financial assistance in the euro area. However, disentangling the effect of developments in one country on others in real time is fraught with difficulties. We demonstrate, using Greece as an example, that ex-ante measures of tail-risk exposure can provide useful real-time signals of cross-market spillovers. We use a novel intra-day event database to verify these results and ensure they are robust to global, euro area and country-specific factors. This data is a useful complement to our tail-risk analysis and allows us to qualitatively disentangle the drivers of developments in Greece that spilled over to other sovereign bond markets. Tail-risk measures could assist with future financial assistance decisions, while our intra-day dataset could provide policymakers with insights into the effects of their communication.