Watering the Garden of Government Securities:Measuring the "Bunching" Effect in Euro Sovereign Bond Markets
AbstractThe adoption of a common currency raised the degree of substitution between financial instruments supplied by EU Member States to finance their national debts. In this framework, our paper looks at a particular determinant of liquidity-related spreads in euro-area government bonds. Simultaneous issuance of similar bonds floods the market with paper and could lead to higher funding costs for sovereign borrowers. We test the significance of this problem, over-supplying liquidity due to a bunching of contemporaneous issues, in a government bond market where borrowers do not coordinate their issuance plans. We find that there is a significant relationship between bunching in issues and higher yield spreads. Moreover, in line with the existing literature, we find a negative correlation between liquidity and bond yields.
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Bibliographic InfoPaper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number wp2008-5.
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EMU; government bond yields; liquidity; calendar of issuance;
Find related papers by JEL classification:
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other
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- Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2003.
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ZEI Working Papers
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- Biais, Bruno & Renucci, Antoine & Saint-Paul, Gilles, 2004. "Liquidity and the Cost of Funds in the European Treasury Market," IDEI Working Papers 285, Institut d'Économie Industrielle (IDEI), Toulouse.
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