Term spreads and the COVID-19 pandemic: Evidence from international sovereign bond markets

Adam Zaremba; Renatas Kizys; David Y Aharon; Zaghum Umar

doi:10.1016/j.frl.2021.102042

Term spreads and the COVID-19 pandemic: Evidence from international sovereign bond markets

Financ Res Lett. 2022 Jan:44:102042. doi: 10.1016/j.frl.2021.102042. Epub 2021 Apr 5.

Authors

Adam Zaremba^{1

2

3}, Renatas Kizys⁴, David Y Aharon⁵, Zaghum Umar^{6

7}

Affiliations

¹ Montpellier Business School, 2300 Avenue des Moulins, 34185 Montpellier cedex 4, France.
² Montpellier Research in Management, University of Montpellier, Montpellier, France.
³ Poznan University of Economics and Business, Institute of Finance, Department of Investment and Financial Markets, al. Niepodległości 10, 61-875 Poznań, Poland.
⁴ University of Southampton, Southampton Business School, Department of Banking and Finance, Room 1013, Building 4, Highfield Campus, Southampton SO17 1BJ, United Kingdom.
⁵ Ono Academic College, Faculty of Business Administration, Tzahal St 104, Kiryat Ono, Israel.
⁶ Zayed University, College of Business, P.O. Box 144534. Abu Dhabi, United Arab Emirates.
⁷ South Ural State University, Chelyabinsk, Russian Federation.

Abstract

We explore the impact of the COVID-19 pandemic on the term structure of interest rates. Using data from developed and emerging countries, we demonstrate that the expansion of the disease significantly affects sovereign bond markets. The growth of confirmed cases significantly widens the term spreads of government bonds. The effect is independent of government policy and monetary responses to COVID-19 and robust to many considerations.

Keywords: COVID-19 pandemic; Coronavirus; Government bonds; Interest rates; Policy responses; Sovereign bond; Term spread; Term structure.