The Correlation of Sovereign Rating and Bonds’ Interest Rate in EU Member States

Abstract

The importance of borrowing is fundamental for central public administration and it consists in sources of f nancing budget def cit and ref nanc-ing government debt. In the last years, a lot of countries had diff culties regarding the payment of public loans at their maturity due to the burden of government debt to GDP ratio. In this situa-tion, investors lose their conf dence not only in the country that is facing problems, but also in other states that pay their debt at maturity. For this reason, they are careful at any change that affects sovereign rating. From our investigation we found that sover-eign rating has a negative inf uence on bonds’ interest rate. As such, decision makers from central public administration should focus on improving sovereign ratings in order to decrease interest rates.