The aim of this paper is to assess how relevant is the topic of sovereign bond valuations in official ECB Executive Board member speeches and what are the driving factors behind this topic. For this purpose, we downloaded over 2000 public ECB Executive Board member speeches and applied different text mining techniques. The visual analysis revealed that the importance of the topic of sovereign bond pricing and related risk factors in ECB officials’ speeches has greatly fluctuated over time. The main structural break points were correlated with the financial market turbulences, but this topic remained relatively popular even after stress episodes, possibly due to the introduction of sovereign bond purchases. The linkages between the publicly communicated terms of sovereign bond pricing and related risk factors were rather complex and changed together with the market situation. Meanwhile, the sentiment balance of the credit risk factor was usually on the negative side, while the ones of other terms were much more neutral.
References
[1]
Afonso, A., Arghyrou, M.G., & Kontonikas, A. (2015). The Determinants of Sovereign Bond Yield Spreads in the EMU. ECB Working Paper Series 1781.
[2]
Alessandrini, P., Fratianni, M., Hughes-Hallett, A., & Presbitero, A. (2012). External Imbalances and Financial Fragility in the Eurozone. MoFiR Working Paper.
[3]
Alonso, F., Blanco, R., del Rio, A., & Sanchis, A. (2006). Estimating Liquidity Premia in the Spanish Government Securities Market. European Journal of Finance, 10, 453-474. https://doi.org/10.1080/1351847042000254202
[4]
Alquist, R. (2010). How Important Is Liquidity Risk for Government Bond Risk Premia? Evidence from the London Stock Exchange. Journal of International Economics, 82, 219-229. https://doi.org/10.1016/j.jinteco.2010.07.007
[5]
Arghyrou, M. G., & Kontonikas, A. (2012). The EMU Sovereign Debt Crisis: Fundamentals, Expectations and Contagion. Journal of International Financial Markets, Institutions and Money, 22,658-677. https://doi.org/10.1016/j.intfin.2012.03.003
[6]
Benzecri, J. P. (1973). L’analyse des données. Tome 1. La taxonomie. Ed. Dunod.
[7]
Bernoth, K., & Erdogan, B. (2010). Sovereign Bond Yield Spreads: A Time-Varying Coefficient Approach.Discussion Papers of DIW Berlin 1078.
[8]
Borgy, V., Laubach, T., M’esonnier, J. S., & Renne, J. P. (2011). Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads. Banque de France Working Paper350.
[9]
Brand, C., Buncic, D., & Turunen, J. (2010). The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve. Journal of the European Economic Association, 8, 1266-1298. https://doi.org/10.1162/jeea_a_00025
[10]
Chen N. (1991). Financial Investment Opportunities and the Macroeconomy. Journal of Finance, 46, 529-554. https://doi.org/10.1111/j.1540-6261.1991.tb02673.x
[11]
Ehrmann, M., & Fratzscher, M. (2009). Explaining Monetary Policy in Press Conferences. International Journal of Central Banking, 5, 42-84.
[12]
Ejsing, J. W., & Sihvonen, J. (2009). Liquidity Premia in German Government Bonds. ECB Working Paper Series 1081.
[13]
Favero, C., Pagano, M., & von Thadden, E. L. (2010). How Does Liquidity Affect Government Bond Yields? Journal of Financial and Quantitative Analysis, 45, 107-134. https://doi.org/10.1017/S0022109009990494
[14]
Ferrara, F. M. (2019). The Battle of Ideas on the Euro Crisis: Evidence from ECB Inter-Meeting Speeches. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3323844
[15]
Gerlach, S., Schulz, A., & Wolff, G. (2010). Banking and Sovereign Risk in the Euro Area. CEPR Discussion Paper 7833.
[16]
Hansen, S., & McMahon, M. (2016). Shocking Language: Understanding the Macroeconomic Effects of Central Bank Communication. Journal of International Economics, 99,S114-S133. https://doi.org/10.1016/j.jinteco.2015.12.008
[17]
Hartmann, P., & Smets, F. (2019). The First Twenty Years of the European Central Bank: Monetary Policy. ECB Working Paper Series 2219.
[18]
Jurkšas, L., & Kropienė, R. (2014). Macroeconomic Determinants of Lithuanian Government Security Prices. Ekonomika, 93, 7-23. https://doi.org/10.15388/Ekon.2014.93.5037
[19]
Jurkšas, L., Kaminskas, R., & Vasiliauskaitė, T. (2024). ECB Monetary Policy Communication Events: Do They MoveEuro Area Yields? Bulletin of Economic Research, 76, 596-625. https://doi.org/10.1111/boer.12439
[20]
Kassambara, A. (2017). Practical Guide to Cluster Analysis in R: Unsupervised Machine Learning. STHDA.
[21]
Kuesters, A. (2018). Applying Lessons of the Past? Exploring ECB Speeches during the Great Recession. UPIER Working Papers.
[22]
Kyle, A. S. (1985). Continuous Auctions and Insider Trading. Econometrica, 53, 1315-1336. https://doi.org/10.2307/1913210
[23]
Ludvigson, S. C., & Ng, S. (2009). Macro Factors in Bond Risk Premia. Review of Financial Studies, 22,5027-5067. https://doi.org/10.1093/rfs/hhp081
[24]
Manganelli, S., & Wolswijk, G. (2009). What Drives Spreads in the Euro Area Government Bond Market? Economic Policy, 24,191-240. https://doi.org/10.1111/j.1468-0327.2009.00220.x
[25]
Musard-Gies, M. (2006). Do European Central Bank’s Statements Steer Interest Rates in the Euro Zone? The Manchester School, 74,116-139. https://doi.org/10.1111/j.1467-9957.2006.00520.x
[26]
Nelson, C. R., & Siegel, A. F. (1987). Parsimonious Modeling of Yield Curves. The Journal of Business, 60,473-489. https://doi.org/10.1086/296409
[27]
Tortola, P. D., & Pansardi, P. (2018). The Charismatic Leadership of the ECB Presidency: A Language-Based Analysis. European Journal of Political Research, 58,96-116. https://doi.org/10.1111/1475-6765.12272
[28]
Vayanos, D., & Wang, J. (2012). Liquidity and Asset Returns under Asymmetric Information and Imperfect Competition. The Review of Financial Studies, 25,1339-1365. https://doi.org/10.1093/rfs/hhr128
[29]
Wanke, S. (2017). Five Years of ‘Whatever It Takes’: Three Words That Saved the Euro. KFW Research Economics in Brief, No. 139.
