Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation
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Otto Randl
Abstract
This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria’s central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.
© 2019 by Walter de Gruyter Berlin/Boston
Articles in the same Issue
- Issue Information
- Fighting Terrorism: Empirics on Policy Harmonisation
- Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation
- Last Minute Policies and the Incumbency Advantage
- Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement
- Banks’ Interest Rate Risk and Search for Yield: A Theoretical Rationale and Some Empirical Evidence
- Means-Tested Long-Term Care and Family Transfers
Articles in the same Issue
- Issue Information
- Fighting Terrorism: Empirics on Policy Harmonisation
- Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation
- Last Minute Policies and the Incumbency Advantage
- Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement
- Banks’ Interest Rate Risk and Search for Yield: A Theoretical Rationale and Some Empirical Evidence
- Means-Tested Long-Term Care and Family Transfers
