Breaking the Ceiling: How Sovereign Risk shapes Corporate Credit in the Euro Area

This thesis investigates how sovereign risk shapes corporate credit in the euro area, focusing on Italian and German corporate bonds between 2013 and 2025. Using a novel bond-level dataset of primary issuances from Bloomberg, corporate spreads are measured relative to domestic sovereign curves and the German Bund. Five research questions are examined: the persistence of the sovereign ceiling; the bank–sovereign doom loop; the effectiveness of ECB interventions; issuance timing and asymmetry in spread responses. Panel regressions with time fixed effects and clustered robust errors show that Italian firms remain constrained by sovereign risk, while German issuers are not. Bank exposures amplify shocks during stress episodes, producing non-linear spillovers. ECB programs such as PEPP and TLTROs reduce spreads in crises but fail to eliminate structural fragmentation. Issuance clusters in low-spread windows, and corporate spreads respond more strongly to sovereign yield increases than to decreases. Overall, sovereign risk continues to shape corporate financing in the euro area, with lasting convergence dependent on advancing Banking and Capital Markets Union reforms.