HIGH YIELDS - THE SPREAD ON GERMAN INTEREST-RATES

This paper is a first attempt at evaluating the determinants of the in terest rate differentials on government bonds between high yielders. n amely Italy. Spain and Sweden, and Germany. In particular Me concentra te on daily frequencies, where the relevance of economic Fundamentals is rather limited. and address the question of the relative importance of local and global factors in the determination of such spread. We i dentify and measure three components of total yield differentials: one due to expectations of exchange rare depreciation - which we call the exchange rate factor - another which reflects the market assessment o f default risk and a last one due to different taxation treatment of l ong-term yields.