A dynamic factor model with time-varying loadings for euro area bond markets during the debt crisis

► Analysis of co-movements of bond returns in the euro area during the debt crisis. ► Use of a factor model with time-varying loadings and stochastic volatility. ► Estimation results show several changes in the factor structure. ► And a strong increase in idiosyncratic variances in almost all bond markets. ► In 2012 the bond markets in Greece, Portugal, and Ireland seem to have decoupled.