scholarly journals The effect of Eurosystem asset purchase programmes on euro area sovereign bond yields during the COVID-19 pandemic

2021 ◽  
Author(s):  
George Hondroyiannis ◽  
Dimitrios Papaoikonomou
Keyword(s):  
Euro Area ◽  
Credit Ratings ◽  
Evidence Based ◽  
Time Varying ◽  
Safe Haven ◽  
Sharp Decline ◽  
Bond Yields ◽  
Perceptions Of Risk ◽  
Sovereign Bond ◽  
Sovereign Bonds

We investigate the effect of Eurosystem Asset Purchase Programmes (APP) on the monthly yields of 10-year sovereign bonds for 11 euro area sovereigns during January-December 2020. The analysis is based on time-varying coefficient methods applied to monthly panel data covering the period 2004m09 to 2020m12. During 2020 APP contributed to an average decline in yields estimated in the range of 58-76 bps. In December 2020 the effect per EUR trillion ranged between 34 bps in Germany and 159 bps in Greece. Stronger effects generally display diminishing returns. Our findings suggest that a sharp decline in the size of the APP in the aftermath of the COVID-19 crisis could lead to very sharp increases in bond yields, particularly in peripheral countries. The analysis additionally reveals a differential response to global risks between core and peripheral countries, with the former enjoying safe-haven benefits. Markets’ perceptions of risk are found to be significantly affected by credit ratings, which is in line with recent evidence based on constant parameter methods.

SNB move will accentuate bond-equity divergence

2015 ◽  
Keyword(s):  
Euro Area ◽  
Yield Curve ◽  
Equity Markets ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Bond Yields ◽  
Content Type ◽  
Sovereign Bond ◽  
Advanced Economies ◽  
The Us

Significance The move mainly aims to pre-empt the widely anticipated launch of a sovereign quantitative easing (QE) programme by the ECB on January 22. However, it will accentuate divergences between bond and equity markets. Sovereign bond yields for most advanced economies are falling to new lows and are increasingly negative at the shorter end of the yield curve, because of deflation fears and lacklustre growth outlooks. Yet equity markets are hovering near record highs, buoyed by the US recovery and expectations of further monetary stimulus in the euro-area. Impacts Bond markets will be driven by deflation fears, while equity markets, especially US stocks, will be buoyed by Goldilocks-type conditions. Market expectations that the ECB will launch a sovereign QE programme will make bond yields fall further. Bond yields will be suppressed by investor scepticism about the ECB's ability to reflate the euro-area economy.

scholarly journals What Factors Shape the Liquidity Levels of Euro Area Sovereign Bonds?

2018 ◽  
Vol 1 (1) ◽  
pp. 154-166
Author(s):  
Linas Jurksas
Keyword(s):  
Regression Model ◽  
Euro Area ◽  
Market Liquidity ◽  
Bond Markets ◽  
Cross Sectional ◽  
Explanatory Variables ◽  
Market Participants ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
Sovereign Bond Markets

Abstract The purpose of this paper is to determine the factors that shape the liquidity levels of euro area sovereign bonds. The values of liquidity measure and explanatory variables were calculated from the limitorder book dataset for almost five hundred bonds from six largest euro area sovereign bond markets. The created variables were used in a cross-sectional regression model. The results revealed that characteristics of sovereign bonds are indeed highly linked with bond liquidity levels, and these effects become even stronger during the regimes of lower market liquidity. Contrary to the statements of market participants and findings of many other studies, the magnitude of trading automation and obligatory requirements imposed on dealers were found to be negatively linked with the liquidity level of sovereign bonds.

scholarly journals Liquidity risk: Intraday liquidity and price spillovers in euro area sovereign bond markets

2021 ◽  
Vol 11 (2) ◽  
pp. 18-31
Author(s):  
Linas Jurkšas ◽  
Deimantė Teresienė ◽  
Rasa Kanapickiene
Keyword(s):  
Euro Area ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Market Liquidity ◽  
Bond Markets ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
Intraday Data ◽  
The Cross ◽  
Sovereign Bond Markets

The purpose of this paper is to determine the cross-market liquidity and price spillover effects across euro area sovereign bond markets. The analysis is carried out with the constructed minute frequency order-book dataset from 2011 until 2018. This derived dataset covers the six largest euro area markets for benchmark 10-year sovereign bonds. To estimate the cross-market spillover effect between sovereign bonds, it was decided to use the empirical approach proposed by Diebold and Yilmaz (2012) and combine it with the vector error correction model (VECM). We also employed the panel regression model to identify why some bond markets had a higher spillover effect while others were smaller. The dependent variable was the daily average spillover effect of a particular bond. As the spillover effects vary highly across different bonds, country-specific fixed effects were used, and the clustered standard errors were calculated for robustness reasons. Lastly, the cross-market spillovers were analyzed daily to compare them with the results of the model with intraday data. The analysis was performed with rolling 100-day window variance decompositions and a 10-day forecast horizon for six sovereign bonds and the overnight indexed swap (OIS) market. The results of the created time-series model revealed that intraday cross-market spillovers exist but are relatively weak, especially in the case of liquidity spillovers. As the cross-market linkages became much more robust with the model using daily data, the liquidity or price disbalances between different markets are usually corrected on longer intervals than minutes. Distance between countries is the most important explanatory variable and is negatively linked to the magnitude of both liquidity and price spillovers. These findings should be of particular interest to bond market investors, risk managers, and analysts who try to scrutinize the liquidity and price transmission mechanism of sovereign bonds in their portfolios.

scholarly journals Positive Liquidity Spillovers from Sovereign Bond-Backed Securities

2019 ◽  
Vol 12 (2) ◽  
pp. 58 ◽  
Author(s):  
Peter G. Dunne
Keyword(s):  
Euro Area ◽  
Risk Premium ◽  
Risk Exposure ◽  
Simulation Approach ◽  
Secondary Markets ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
Reduce Risk ◽  
Sovereign Defaults ◽  
Country Specific

This paper contributes to the debate concerning the benefits and disadvantages of introducing a European Sovereign Bond-Backed Securitisation (SBBS) to address the need for a common safe asset that would break destabilising bank-sovereign linkages. The analysis focuses on assessing the effectiveness of hedges incurred while making markets in individual euro area sovereign bonds by taking offsetting positions in one or more of the SBBS tranches. Tranche yields are estimated using a simulation approach. This involves the generation of sovereign defaults and allocation of the combined credit risk premium of all the sovereigns, at the end of each day, to the SBBS tranches according to the seniority of claims under the proposed securitisation. Optimal hedging with SBBS is found to reduce risk exposures substantially in normal market conditions. In volatile conditions, hedging is not very effective but leaves dealers exposed to mostly idiosyncratic risks. These remaining risks largely disappear if dealers are diversified in providing liquidity across country-specific secondary markets and SBBS tranches. Hedging each of the long positions in a portfolio of individual sovereigns results in a risk exposure as low as that borne by holding the safest individual sovereign bond (the Bund).

scholarly journals EUROPEAN FINANCIAL MARKET INTEGRATION: A CLOSER LOOK AT GOVERNMENT BONDS IN EUROZONE COUNTRIES

2020 ◽  
Vol 3 (1) ◽  
pp. 78-86
Author(s):  
Paulo Alexandre ◽  
Rui Dias ◽  
Paula Heliodoro
Keyword(s):  
Financial Crisis ◽  
Market Integration ◽  
Global Financial Crisis ◽  
Bond Yields ◽  
Government Bonds ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
Debt Markets ◽  
Debt Market ◽  
The Global Financial Crisis

This research aims to test the interdependencies between the Eurozone, US and Japanese debt markets, through the yields of 10-year sovereign bonds. The sample covers the period from 2002:01 to 2019:07. The analysis aims to provide answers to two questions: Has the global financial crisis accentuated the interdependencies in the Eurozone debt markets? If yes, how did it influence the movements in sovereign bond yields? The results suggest that the global financial crisis did not accentuate the levels of interdependence between the main Euro zone debt markets. In addition, the results suggest the existence of high movements in periods of crisis and not crisis. We also found that yields on PIIGS sovereign bonds decreased their interdependencies with their peers in the years 2002 to 2019, with the exception of the Greek debt market.

Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads

2011 ◽  
Author(s):  
Vladimir Borgy ◽  
Thomas Laubach ◽  
Jean-Stéphane Mésonnier ◽  
Jean-Paul Renne
Keyword(s):  
Euro Area ◽  
Default Risk ◽  
Fiscal Sustainability ◽  
Sovereign Bond ◽  
Bond Spreads
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