Data We focus on the sovereign bond markets of
We focus on the sovereign bond markets of nine euro area countries, namely Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain.7 The sample Andarine ranges from January 2007 to March 2014. Daily benchmark ten-year government bond yields are retrieved from Datastream. These bond yields are denominated in euros. Because of the common currency denomination, we do not face the problem that yield differentials may arise from bilateral exchange rate changes.
Studies of sovereign bond market contagion within the euro area have focused on both bond yields and CDS spreads. In classes paper, we have chosen to focus on bond yields but not CDS spreads. Bilal and Singh (2012) have shown that there have been policy actions which have moved bond yields substantially but not affected CDS spreads. The example of the Securities Markets Programme of the ECB illustrates this decoupling between bond yields and CDS spreads. Since policy actions with major effects on bond yields may represent an unusually large shock in our analysis, we have therefore chosen to focus only on sovereign bond yields.