The Determinants of Greek Bond Yields: An Empirical Study Before and During the Crisis

In this paper we try to uncover the determinants of the 10-year Greek bond yield in both pre and post crisis period that caused the unprecedented event, in the recent history, a country, member of the Euro area, not to able to tap the market. In doing so, we employ two major set of variables, market driven and macroeconomic variables, following the recent literature. We find two classes of results. First, debt to GDP ratio, deficit, inflation and unemployment among others, play a more significant role as determinants of the 10-year Greek bond yield during the crisis than had before and second, during the crisis 10years yield is above the price that fundamentals would imply. Moreover, we explicitly test for the impact of speculation on the yield. These results are in line with other empirical studies and shed line to the motion of bond yield in an unprecedented in terms of fiscal consolidation era as it is in Greece.