How do Experts Forecast Sovereign Spreads?

By Jacopo Cimadomo, Peter Claeys, Marcos Poplawski Ribeiro

May 20, 2016

Preview Citation

Format: Chicago

Jacopo Cimadomo, Peter Claeys, and Marcos Poplawski Ribeiro. How do Experts Forecast Sovereign Spreads?, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses how forecasting experts form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the United Kingdom between January 1993 and October 2014, we test whether respondents consider the expected evolution of the fiscal balance—and other economic fundamentals—to be significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. This suggests that credible fiscal plans affect market experts’ expectations and reduce the pressure on sovereign bond markets. In addition, we show that expected fundamentals generally play a more important role in explaining forecasted spreads compared to realized spreads.

Subject: Financial institutions, Financial services, Fiscal policy, Fiscal space, Fiscal stance, Inflation, Prices, Sovereign bonds, Yield curve

Keywords: Bond yield, Bond yield spread, Consensus Economics, Dependent variable, Fiscal space, Fiscal stance, Forecasted spread, Global, Government bond, Inflation, Market expectations, Market spread, Monetary policy, Sovereign bond bond market, Sovereign bond spreads, Sovereign bonds, Sovereign spread, Spreads forecast, Survey data, Vis-à-vis Germany, WP, Yield curve, Yield US

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/100
Stock No:

WPIEA2016100
ISBN:

9781484362068
ISSN:

1018-5941

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