What Drives Sovereign Yield Spreads in the Euro Area? The Importance of the Alignment of Views between Investors and Policymakers.

This paper examines how the alignment of views between policymakers and investors regarding the European Central Bank monetary policy drives the sovereign yield spreads of the euro area. More specifically, we contribute to the literature through a measurement of the alignment of views between investors and policymakers via a systematic interpretation of both the introductory statement and the following questions and answers part of ECB press conferences in a latent semantic analysis framework. Our sample period, spreads over two presidential mandates, covers quiet and more stressful periods.
Most notably, we show how a better alignment of views between the ECB board of governors and investors significantly reduces the level of sovereign yield spreads.