An Empirical Investigation on the Effect of Long Term Debt on Country Bond Yields
Dr. John Lunn, Hope College
Investors take into account many different types of data when determining what interest rates they will pay on bonds of a given country, including the absolute level of debt. Regression results using debt as a percentage of GDP and other variables in order to estimate interest rates for a country showed that total debt is significant. However, the coefficient was negative, indicating that countries with higher levels of debt tend to pay lower interest rates for other reasons.
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