- Home
- Publications
- Sovereign Risk And The Referendum – How Have Bonds Responded?
Sovereign Risk and the Referendum – How Have Bonds Responded?
Abstract:
As the debate around the UK’s impending referendum on EU membership has ebbed and flowed, so too have financial markets. Using our newly developed estimates for sovereign risk premia, we uncover how news about the likely outcome of the referendum has impacted financial markets, and what this might tell us about the determinants of sovereign term premia and investors’ attitudes to risk. We find that increases in the probability of an exit from the EU are associated with a reduction in UK term premia and falls in UK stock prices. Moreover, we find evidence of spillover effects to the Euro Area; specifically periphery term premia are increasing, and German term premia are decreasing, in the likelihood of the UK voting to leave the EU. These patterns are consistent with the view that in the run up to the referendum changes in investors’ risk aversion have been a significant determinant of sovereign bond premia. Increases in the probability of a vote to leave are associated with investors rebalancing their portfolios away from risky assets and into safer assets, including UK government bonds.
NiGEM Observations is a series of occasional notes published by the NiGEM team on topical macroeconomic modelling issues for NIESR corporate sponsors and NiGEM subscribers.
Related Blog Posts
Public Debt Sustainability and Fiscal Rules
Stephen Millard
Benjamin Caswell
05 Feb 2024
4 min read
Related Projects
Related News
Call for Papers: Lessons From Quantitative Easing & Quantitative Tightening
09 Feb 2024
1 min read
Related Publications
Inflation Differentials Among European Monetary Union Countries: An Empirical Evaluation With Structural Breaks
20 Nov 2023
National Institute Economic Review
The Macroeconomic Effects of Re-applying the EU Fiscal Rules
20 Nov 2023
National Institute Economic Review
Another Look at a Sensible Fiscal Policy for the Sharp Rise in Government Debt
20 Nov 2023
National Institute Economic Review
Monetary Policy: Prices versus Quantities
20 Nov 2023
National Institute Economic Review