Explaining Yield Spreads of Swiss Canton Bonds : An Empirical Investigation

This paper analyses the rather large yield spreads of the debt of Swiss cantons (defined as the difference between yield of canton and federal bonds) using data for bonds issued between 1990 and 1998. A regression analysis with and without correction for selection bias of 84 non-callable bond issues over nine years yields the following results. First, fiscal indicators like debt and primary balance exhibit no statistically significant effect on yield spreads. Second, institutional factors, in particular the ability to launch financial referendums, are important determinants of yield spreads. Third non-German speaking cantons and cantons with large cities have to pay higher interest on their debt even if we control for fiscal and institutional factors