Roberto De Santis, 16 March 2017

French sovereign spreads have risen in recent months, coinciding with debate over the euro ahead of the country’s presidential elections in May. Italian sovereign spreads have been rising since the beginning of 2016. This column argues that investors are not pricing a break-up of France from the Eurozone. Most likely, they are pricing the possibility that the newly elected French government will not have enough supremacy to undertake important economic reforms. Market perception of redenomination risk in Italy, on the other hand, is rising slowly. 

Joshua Aizenman, Yothin Jinjarak, 30 June 2012

Might income inequality make structural adjustments more difficult? This column presents data from 50 countries in 2007, in 2009, and in 2011, and finds that higher income inequality in the country is associated with a lower tax base, less fiscal space, and higher sovereign spreads.

Alberto Alesina, Daniel Nadler, 28 April 2012

The divergence in sovereign spreads across Eurozone members has been the object of much attention. This column looks at divergence across US states and finds that unexpected deficits are correlated with higher state bond yields across all states. This effect is larger for states with left-leaning political systems, suggesting that bond-market participants view political variables as relevant in assessing the risk characteristics of sub-sovereign bonds.

Kris Mitchener, Marc Weidenmier, 30 June 2010

The Eurozone crisis has led some to seriously consider the prospect of a breakup of the euro. This column presents evidence from the classical gold standard era (1870-1913) suggesting that even then investors doubted the credibility of emerging market countries sticking to a hard currency peg – with higher premiums on sovereign debt as a result.

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