Co-exceedances in Eurozone sovereign bond markets

The paper examines contagion between the sovereign bond markets of six Eurozone countries (France, Germany, Ireland, Italy, Spain, and Portugal) in the period from January 2000 to August 2011. A multinomial logistic model is applied to analyze contagion based on measuring joint occurrences of large yield changes (i.e., co-exceedances), while controlling for developments in common and regional factors th at affect all sovereign bond markets simultaneously. I found that the Eurozoneʼs stock markets (EUROSTOXX50) returns, United Statesʼ Treasury note yields, and the Euro - U.S. dollar (EUR - USD) exchange rate significantly impact the probability of extreme posi tive yield moves in the Eurozoneʼs sovereign bond markets. Positive EUROSTOXX50 returns and upside moves in U.S. Treasury note yields increased the probability of extreme positive sovereign bond yield moves in the Eurozone, whereas an increase in the EUR-USD exchange rate significantly reduced the probability. Conditional volatility in the Eurozone stock markets and the money market interest rate do not significantly impact the probability of extreme yield increases in the Eurozoneʼs sovereign bond markets. Furthermore, the probability of observing exceedance across Eurozone sovereign bond markets increased dramatically during the Eurozone debt crisis compared to the pre-crisis period. This studyʼs results also indicate less synchronous extreme yield dynamics across the Eurozone sovereign bond markets during the global financial crisis, especially during the Eurozone debt crisis compared to the pre-crisis period