What drives Euro area credit Spreads?
En bref
The fall in Euro area Option Adjusted Spreads (OAS) to levels not seen since 2007 has raised the question of their consistency with fundamentals, especially given the still looming uncertainty around the strength and speed of the economic recovery. We try to provide an answer by means of an econometric model. Our main goal is to provide a model that measures the importance of different fundamental drivers and, helps es- timate what the “fair value” of these spreads should be.
