Bond Pricing Before and after EMU From the Experience of the European South

Bond Pricing Before and after EMU From the Experience of the European South

We use an extensive sample of 763 bonds issued by financial institutions of three countries of the “European South”, in 1997, one year before the selection of the “first-wave” EMU participants, and in 1999, EMU` s starting year, to investigate the extent to which the aforementioned expectations materialized. The empirical results indicate that, indeed, the bond market segmentation due to the different currencies was largely eliminated. In addition, the segmentation due to the different countries was reduced significantly, while the importance of credit ratings increased. The empirical results highlight the likely developments in the bond markets of countries aspiring to join the EMU.