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Euro area sovereign bond risk premia during the Covid-19 pandemic

We decompose euro area sovereign bond yields into five distinct components: i) expected future short-term risk-free rates and a term premium, ii) default risk premium, iii) redenomination risk premium, iv) liquidity risk premium, and a v) segmentation premium. Identification is achieved by modeling sovereign bond yields jointly with other rates, including sovereign credit default swap spreads with and without redenomination as a credit event feature.