Effects of asset purchases and financial stability measures on term premia in the euro area

ABSTRACT

We study the effects of the announcements of ECB asset purchases and of financial stability measures in the euro area in the wake of the global financial crisis and the euro area sovereign debt crisis on 10-year government bond term premia in 11 euro area countries. We find that the term premia of euro area countries with higher sovereign risk, as measured by sovereign CDS spreads, decreased more in response to the announcements of asset purchases and financial stability measures. Term premia of countries with lowest sovereign risk either increased as in Germany, or were not significantly affected or fell slightly, as in the Netherlands and Finland.

KEYWORDS:

• Monetary policy
• asset purchases
• financial stability
• term premia

JEL CLASSIFICATION:

• E58
• G15

Acknowledgements

I would like to thank Bill Allen, Jagjit Chadha, Simon Kirby, Simon Lloyd, Jack Meaning, James Warren, two anonymous referees and seminar participants at the Bank for International Settlements for helpful comments and discussion, and Boris Hofmann and Anamaria Illes for help with identifying announcement dates. The views expressed in this article are those of the author and not necessarily the views of the Bank for International Settlements.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ A list of abbreviations is given in Appendix Table A1.

² Using data on CDS spreads, Blasques et al. (2016) find that spillovers within the euro area decreased with the ECB’s OMT. Falagiarda, McQuade, and Tirpák (2015) find some evidence of spillover effects of the ECB’s asset purchases on asset prices in economies in central and Eastern Europe. Georgiadis and Gräb (2015) present some evidence of spillovers from the 22 January 2015 announcement of the APP on international asset prices.

³ Andrade et al. (2016) also study the effects of the ECB’s APP on inflation expectations, and Moessner (2015) studies the effects of the ECB’s unconventional monetary policy measures, including of asset purchases, on inflation expectations.

⁴ Altavilla, Carboni, and Motto (2015) also present a theoretical model for the effects of asset purchases on term premia.

⁵ See Chadha et al. (2014) regarding term structure modelling more generally.

⁶ Due to a restructuring of Greek sovereign debt on 9 March 2012, which led to a large fall in Greek government bond yields, the results for Greece reported in Table 3 are less reliable, which might explain that we find no significant effect of the announcement of asset purchases or financial stability measures on Greek term premia.