Redenomination risk in eurozone corporate bond spreads

Bleaney, Michael; Veleanu, Veronica

Abstract

We investigate the risk spillover from euro area government bond spreads (relative to a safe German government bond of similar maturity) to nonfinancial corporate bonds in France, the Netherlands (‘hard’ euro-area countries), and Italy, Portugal and Spain (‘soft’ euro-area countries). In addition to standard firm- and bond-specific determinants of corporate bonds (capturing liquidity and tax effects, and other euro area macroeconomic risks), we show that there is significant risk transfer from government bonds to the nonfinancial corporate sector. After decomposing the government bond spread into a default risk and a currency redenomination risk component, associated with a possible split in the euro, we find that redenomination risk has been a significant factor in the pricing of corporate bonds, particularly in the ‘soft’ euro-area countries.

Citation

Bleaney, M., & Veleanu, V. (2021). Redenomination risk in eurozone corporate bond spreads. European Journal of Finance, 27(13), 1303-1325. https://doi.org/10.1080/1351847x.2021.1882524

• Journal Article Type: Article
• Acceptance Date: Jan 11, 2021
• Online Publication Date: Feb 8, 2021
• Publication Date: 2021
• Deposit Date: Feb 15, 2021
• Publicly Available Date: Aug 9, 2022
• Journal: European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 27
• Issue: 13
• Pages: 1303-1325
• DOI: https://doi.org/10.1080/1351847x.2021.1882524
• Keywords: Economics, Econometrics and Finance (miscellaneous)
• Public URL: https://nottingham-repository.worktribe.com/output/5328512
• Publisher URL: https://www.tandfonline.com/doi/abs/10.1080/1351847X.2021.1882524?journalCode=rejf20