The impact of ECB's pandemic emergency asset purchase announcements on sovereign bond markets: evidence from Euro area countries

This paper presents a comprehensive event study analysis to trace the impact of the announcements of the ECB's asset purchases during the COVID-19 pandemic period on major euro area sovereign bond markets. The findings indicate that such impact differs considerably across types of assets and countries. For instance, the monetary easing news performs a strong impact on the long- and medium-term sovereign debt yields. We find also that ECB's monetary actions have been effective in lowering the return volatility for the short-term interest rates. In addition, the reducing effect of monetary news during the COVID-19 crisis remains strong and significant for Italy and Spain, even after controlling for macroeconomic surprises. Furthermore, while the sovereign yields may not reveal significant responses to monetary news which are not related to asset purchases undertaken by the ECB, our findings highlight significant stabilisation and destabilisation impacts of these announcements. Finally, a split between early PEPP and subsequent (June and December) announcements indicates that the decline in the sovereign bond yields is driven by the March announcements. The stabilisation effect in the short-term bond market shown for the whole sample is mainly explained by the June and December announcements.