The impact of textual sentiment on sovereign bond yield spreads: evidence from the Eurozone crisis

This study examines the relation between textual sentiment, the concentration/volume of news, and sovereign bond yield spreads, specifically in Greece, Ireland, Italy, Portugal and Spain during the European sovereign debt crisis (January 2009 to December 2012). The results are consistent with the story that investors of sovereign bonds respond to rising negative sentiment accompanied by an increased concentration/volume of news. If the change of the interaction measures increases by 1 unit and other factors remain unchanged, the change of yield spreads would move upwards by approximately 18 to 32 basis points, putting downward pressure on prices. Negative sentiment and the number of news stories respectively and collectively help predict the widening of yield spreads. A higher negative sentiment level is strongly associated with more news stories being reported, suggesting that “no news is good news.” Overall, textual sentiment conveys potential pricing-relevant information over and above the traditionally identified factors