Original scientific paper
https://doi.org/10.1080/1331677X.2021.1934509
Influence of COVID-induced fear on sovereign bond yield
Jessica Paule-Vianez
Carmen Orden-Cruz
Sandra Escamilla-Solano
Abstract
There is limited literature exploring the relationship between the
sentiment of fear and bond markets. This study analyzes the influence of fear generated by the coronavirus on bond markets, particularly on the yield of sovereign bond debt issued by the G7
countries (Germany, Canada, the United States, France, Italy,
Japan, and the United Kingdom). To accomplish this, search volumes compiled by Google Trends on the topic of coronavirus
were used as a proxy for COVID-induced fear. The results from
applying a panel data approach for the period from 1 January
2020 to 30 December 2020, show that this fear positively impacts
the 10-year sovereign bond yield. We show that a one-point
increase in COVID-induced fear was associated with an increase in
the weekly change in the sovereign bond yield of around
0.0007%. Thus, we found that COVID-induced fear was associated
with an increase in country risk perception. These findings have
important implications for policymakers by demonstrating the
importance of searching a balance between health concerns and
impacts on the economy to avoid increasing country risk. In addition, the results obtained show that in times of greater fear of
the coronavirus, investors can obtain higher returns by investing
in safe assets, such as sovereign bonds.
Keywords
COVID-19; fear; sovereign bonds; yield; Google Trends; behavioral finance
Hrčak ID:
302255
URI
Publication date:
31.3.2023.
Visits: 575 *