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Dangerous liaisons: Debt supply and convenience yield spillovers in the euro area

Governments in advanced economies face growing pressure to increase public spending. This column finds that debt issuance in euro area countries whose bonds are considered relatively safe drives up interest rates in both the issuing country and in other ‘safe’ countries. This new type of spillover, which differs from contagion effects and default risk spillovers, implies that total debt issued in ‘safe’ countries matters more for sovereign interest rates than which country issues it. […]