The degree of integration of the Bulgarian and Croatian government bond markets into the Eurozone government bond market

Abstract

PURPOSE: This paper attempts to answer the question to what degree the bond markets of Bulgaria and Croatia are integrated into the eurozone’s government bond exchange market.

DESIGN/METHODOLOGY/APPROACH: An econometric model based on the model of beta coefficient evolution is used to analyse the degree of integration of the Bulgarian and Croatian sovereign bond markets into the eurozone government bond market. The model is estimated by means of GARCH. Two separate research periods are adopted: 2003-2021 for Bulgaria and 2006-2021 for Croatia. Monthly data on the yields till buy-out of 10-year Bulgarian and Croatian sovereign bonds are used. The yields till buy-out of 10-year German government bonds serve as the benchmark.

FINDINGS: Both the Bulgarian and Croatian government bond markets are integrated into the eurozone sovereign bond market to a low degree.

PRACTICAL IMPLICATIONS: The results presented in this paper can be employed by economists, politicians, and business practitioners who deal with the integration of financial markets including bond markets.

ORIGINALITY/VALUE: This study addresses two countries that are aspiring and closest to joining the eurozone, hence research into the degree of integration of their sovereign bond markets into the eurozone market is important.