In this paper, we provide new evidence on the determinants of sovereign yield spreads and contagion effects in the euro area in order to evaluate the rationale for a common Eurobond jointly guaranteed by euro-area Member States. We find that default risk is the main driver of yield spreads,...

We provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the United States are more pronounced for bonds issued by Italy and Spain. Liquidity factors...