This empirical research uses an OLS regression framework to examine the effect\nof the overall debt crisis on European sovereign bonds by conducting an\noverview of the bond market. It identifies the determinants which affect the\ngeneration of the indebtedness of sovereign bonds and play a major role in the\ndetermination of their solvency and hence, the spreads. These results reveal\nthat Interest Rate, Inflation, Debt to GDP, Deficit to GDP, Gross Domestic\nProduct rate of growth, and VSTOXX index are the most significant determinants\nof the sovereign bond spreads in the 6 sample countries, i.e. France,\nGermany, United Kingdom, Greece, Italy and Spain. To summarize, the\nmain factors which affected bond spreads before the crisis, were not the\ncountry-specific fundamentals but rather the convergence of bond yields in\nthe euro-zone countries due to and following the launch of the monetary union\nbut during the crisis, increased risk aversion and lack of lender of last\nresort, shifted the focus to country specific factors and the bond spreads began\nto diverge according to the determinants highlighted in this study.
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