Contagion in Eurozone sovereign bond markets? The good, the bad and the ugly

- We test for contagion between Eurozone bond markets during the sovereign debt crisis.
- We identify two distinct phases of the crisis.
- Contagion plays a limited role in propagating shocks.
- Contagion is more important during the more intense phase of the crisis.
- In the majority of cases, market comovements are due to interdependencies.

We test for contagion between Eurozone bond markets during the sovereign debt crisis. Using a three-regime Markov-switching VAR, we identify two distinct crisis phases (the bad and the ugly) with differing patterns of shock transmission. Evidence of contagion is scant.