Contagion in the Albanian Euro Denominated Sovereign Debt

Rezart ERINDI, Nertila XHELILI

Abstract The sovereign debt crisis has been one of the moving forces in the financial markets in the last couple of years. We have seen how countries in the Eurozone and further in the European Union have suffered the contagion, consequence of globalization and borderless financial systems. While there is evidence that contagion has been present for these countries, mainly from the peripheral troubled countries, there is yet no evidence about what has happened in southern Europe and especially Albania. This study will try to shed some light on the developments in the Albanian sovereign debt market during the last couple of years. First we have a look at the Albanian development scale, to better identify the countries against which we should analyze the sovereign debt trend. The second part exploits Albanian debt dynamics and the debut of the Eurobond in the international market, its evolution and the spread history. In the third part we describe the factors that should theoretically determine the yield and spread of a sovereign bond, in order to model them for the Albanian Eurobond. In the last part, the results of the model are analyzed for reasons behind the yield increase during the crisis to further conclude if there is any contagion from the sovereign debt crisis or just changes in fundamental factors that generate Albania’s profile as a sovereign issuer.
Kewords eurobond, sovereign debt crisis, contagion
JEL Classification H63
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