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The announcements of unconventional monetary policies and sovereign bond liquidity premia

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  • Tarek Chebbi
  • Waleed Hmedat

Abstract

This article makes an original assessment of the ECB's asset purchase program effects on the sovereign bond liquidity premia in selected Euro area periphery countries by employing an event-study analysis during the period of 2009-2015. We provide evidence that monetary news emerged as a key determinant in bond market liquidity as measured by the CDS-bond basis. More specifically, the estimates show that all events were effective in countering upward pressure on Italian liquidity premia. Our findings show also robust and economically significant impact of events associated with securities markets program and outright monetary transactions on the Italian and Spanish liquidity premiums. Alternatively, some insights gained from our study include an imperative for a careful effect identification and the review of the legitimacy of the perfection of bid ask spreads. Surprisingly, the information contained in unconventional monetary announcements does not matter for assessing the liquidity dynamics of the 10-year sovereign bonds.

Suggested Citation

  • Tarek Chebbi & Waleed Hmedat, 2023. "The announcements of unconventional monetary policies and sovereign bond liquidity premia," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 29(3), pages 287-315.
    • Handle: RePEc:ids:gbusec:v:29:y:2023:i:3:p:287-315
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