Fundamentals versus market sentiments in the euro bond markets: Implications for QE

Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.Despite the partial realignment of European long-term government bonds after the financial and economic crisis in 2012, there has been some renewed divergence in yields in the last years. The authors find that the government bond markets in the euro area are highly sensitive to changing market sentiments, both in time and across countries. Their analysis suggests that pulling the plug on QE too soon might undo some of the benefits of QE in the countries of the periphery and may lead to increases in the refinancing costs of member states with little or no fiscal space.

• Primary Source

European Parliament: European Parliamentary Research Service: In-Depth Analysis, May 2017: Fundamentals versus market sentiments in the euro bond markets: Implications for QE http://www.europarl.europa.eu/RegData/etudes/IDAN/2017/602049/IPOL_IDA(2017)602049_EN.pdf

ESO: Background information: ECB policies [EPRS: What Think Tanks are thinking, April 2017] http://www.europeansources.info/record/ecb-policies-what-think-tanks-are-thinking/

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